The consensus on the dollar reserve currency role is not wrong, exactly. It is looking in the wrong place. While commentary continues to obsess over the International Monetary Fund’s quarterly COFER data, the actual story of where sovereign dollar holdings are growing has migrated well beyond the central bank balance sheet.
De-Reservification, Not De-Dollarization
Brad Setser, senior fellow at the Council on Foreign Relations, frames the distinction precisely: the world is not moving away from the dollar. It is shifting its dollars from traditional reserves held by central banks into state banks, pension funds, and other quasi-sovereign investors. The difference matters enormously for how you read the headline figures.
The IMF’s COFER numbers, the ones that generate quarterly ink about whether the dollar’s share has edged from 56.5% to 57%, track only formal foreign exchange reserves. As Setser notes, neither the stock of global reserves nor the stock of dollar reserves has changed much over the last ten years. The action is elsewhere, and the quarterly COFER release tells you very little about it.
Consider the Japanese case. Japan’s Government Pension Investment Fund holds almost as many foreign assets ($986 billion) as Japan’s government holds in formal FX reserves ($1.1 trillion at the end of August). The FX reserves sit on the books of the Ministry of Finance; the pension fund is overseen by the Ministry of Health, Welfare and Labour. Both are effectively assets of the Japanese public sector. Neither the Ministry of Finance nor the pension fund is a classic reserve manager, yet together they dwarf what COFER would capture about Japan’s dollar exposure.
South Korea presents a similar picture. Korea’s National Pension Service holds more foreign assets than the Bank of Korea holds in FX reserves. And according to the CFR analysis, around two-thirds of South Korea’s formal FX reserves were in dollars as of the end of 2025, a reminder that even within the narrower official pool, dollar dominance remains intact.
China’s State Banks and the Dollar’s Real Growth Engine
The China data is where the dollar reserve currency role consensus looks most exposed to revision, but not in the direction that the de-dollarisation narrative assumes. China reports $3.3 trillion in gross foreign assets to the Bank for International Settlements, with a net position of $2.5 trillion once foreign bank claims on the broader Chinese economy are netted out. The balance of payments data shows nearly $4 trillion in gross outflows through the banking system.
The top five Chinese state commercial banks reported a combined $2.5 trillion in foreign currency assets in their 2025 annual reports, with the bulk held abroad. The two policy banks (China Development Bank and China Exim) have not disclosed their foreign asset positions, a gap the CFR analysis notes has not been adequately highlighted by the IMF. Work by AidData points to nearly $1 trillion in foreign assets at the policy banks alone, with a substantial dollar share.
Since 2010, and more markedly after 2014, net outflows through Chinese state banks have exceeded reserve accumulation, according to the CFR analysis. That is the structural shift that the COFER obsession misses entirely. China is not dumping dollars. Its state banking system has been accumulating them at a pace that formal reserve figures do not capture.
The implications run deeper than bookkeeping. As Setser puts it, the dollar’s global role is increasingly functioning as a source of returns rather than a source of safety. The foreign bid (private and quasi-sovereign alike) is oriented toward US risk assets, not Treasuries. That preference may help explain why the convenience yield on US Treasuries has compressed even as the dollar retains its broader privilege: the premium has shifted from the debt to the equity.
That apparent premium on US risk assets, as Setser argues, deserves at least as much scrutiny as the currency composition of central bank FX reserves. The bond market has already offered its own commentary. At the time of writing, the 30-year yield stands at 5.57% and the 10-year at 5.26%, not because countries are selling Treasuries or abandoning the dollar in any meaningful way, but because the market has concluded it is the house now, not Scott Bessent. The Treasury Secretary’s remark that he holds asymmetric information and invited bets against him has, so far, aged poorly.
The real de-dollarisation risk, if it comes, will show up first among these quasi-sovereign investors (the state banks, the pension funds, the sovereign wealth vehicles) long before it appears in a COFER release. Watch those balance sheets, not the quarterly headline figure.
