Dollar less important when reserves abundant

The share of the dollar in global foreign currency reserves falls when reserve levels increase, finds a new paper from the European Central Bank.

The authors find that as countries become less concerned with a sudden stop in financial inflows, they are more willing to diversify their reserve portfolio.

The paper also finds that the dollar appears to be a better hedge for sudden stops in inflows in Latin America and Asia, while the euro is a better hedge for sudden stops in emerging Europe.

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