An important question in international economics concerns the motives for the accumulation and management of foreign reserves. While earlier studies have considered the level of reserves, their currency composition, and whether they are held for precautionary reasons or as a corollary of policies designed to limit exchange rate appreciation (Arslanalp et al. 2026, Goldberg and Hannaoui 2026), their instrument composition – whether central banks hold reserves in the form of deposits or securities – has been all but entirely neglected.

A global shift towards foreign exchange securities starting in the late 1990s

We assemble new data for 109 countries in the period 1950-2022 based on previously unutilised statistics from central bank annual reports (Chenard et al. 2026). We show that there has been movement since the late 1990s toward holding a larger share of reserves in the form of securities. Figure 1 shows that, on average, securities now account for almost two-thirds of total foreign exchange (FX) reserves, up from one-third a quarter century ago. This shift is concentrated in the decade between the emerging market crises of the late 1990s and the 2008 global crisis. It coincided with the well-documented surge in foreign exchange reserve holdings worldwide (Rodrik 2006, Eichengreen et al. 2018).

Figure 1 Average share of securities in foreign exchange reserves (in blue), 1950-2022

Notes: Sample of 109 countries. Total foreign exchange reserves are the sum of foreign exchange deposits and securities. The share of securities is in blue, and the share of deposits in red. 
Source: Chenard et al. (2026).

This trend is not driven by a small subset of countries. When we consider the median rather than the mean ratio (Figure 2), the same pattern emerges. The median share rises from around 25% before 1998 to about 70% in the late 2000s. Distinguishing between high- and middle-income economies reveals a similar upward trend in both groups and a major shift at the same time, in the late 1990s. 

Figure 2 Median share of securities in foreign exchange reserves (in blue), 1950-2022

Notes: Sample of 109 countries. Total foreign exchange reserves are the sum of foreign exchange deposits and securities. The share of securities is in blue, and the share of deposits in red. 
Source: Chenard et al. (2026).

Figure 3 shows the distribution of the share of securities in foreign exchange reserves for three benchmark years, 1980, 2000, and 2020, using all available country-year observations. In 1980, ratios above 60% (of securities in total foreign exchange reserves) are less frequent than lower values; by 2000, they have become equally frequent; and by 2020, they are more common than any ratio below 60%. Over time, the distribution becomes increasingly rightward-skewed, confirming that the rise in the share of securities is general. 

Figure 3 Density of the share of securities in foreign exchange reserves in 1980, 2000, and 2020

Notes: Sample of 109 countries. Total foreign exchange reserves are the sum of foreign exchange deposits and securities. The share of securities is in blue, and the share of deposits in red. 
Source: Chenard et al. (2026).

One might be concerned that the number of countries in our sample is not constant and that it increases in the 1990s. The trend in Figure 1 could, in principle, reflect changes in sample composition rather than a genuine change in reserve management and its determinants. To address this, we have replicated the exercise while holding the set of countries fixed at the 1995 composition, that is, just before the sharp increase in the ratio. Conclusions are similar.

Why central banks came to prefer securities 

It is not surprising that central banks hold different instruments in their reserve portfolios, since they hold reserves for different reasons. Reserves are held, for example, to fund interventions in the foreign exchange market. For this purpose, central bank reserve managers prefer assets that are easy to buy and sell and whose value is predictable, since this helps the trading desk responsible for interventions know how much firepower it possesses. At the same time, reserves accumulated through past interventions that exceed those prospectively needed for future interventions may be valued for their income-generating potential. Reserve managers may prefer to hold these assets as part of a less liquid investment portfolio displaying a desired combination of risk and return. Correspondingly, central bank reserve managers not uncommonly refer to liquidity and investment tranches of their reserve portfolios (Lu and Wang 2019, Bjorheim 2020, World Bank 2025). 

Deposits are a logical form in which to hold the liquidity tranche, since they are easily withdrawn (liquidated) and their value is predictable (their value in foreign currency terms is likely to change only slightly day to day). Securities are attractive for the investment tranche, since they promise a higher return, though offering less predictability, while allowing the reserve manager to tailor the portfolio to achieve the desired balance of risk and return.

Excess reserves (mercantilist motive) as driver of foreign exchange securities accumulation

An obvious candidate explanation for the shift in reserve composition away from deposits and toward securities since the late 1990s is thus additional reserve accumulation following the Asian financial crisis of 1997-98. Earlier authors have noted the tendency for central banks to accumulate reserves in the wake of this event. An important question is whether central banks accumulated these reserves for precautionary or mercantilist reasons. If they accumulated reserves for precautionary reasons – if the experience of the Asian crisis led them to anticipate the need for larger foreign exchange market interventions – then one would expect additional investment in deposits. But if they accumulated reserves for mercantilist reasons – in an effort to keep their exchange rates from appreciating – then reserve accumulation in excess of that needed for intervention would lead one to expect additional investment in securities.

Econometric analysis shows that the share of securities in reserves rose when total reserves exceeded liquidity needs, as measured by standard indicators such as the ratio of reserves to imports or the IMF’s Adequacy of Reserves Assessment. Similar conclusions are reached when the main explanatory variable is the share of foreign exchange reserves to GDP. Overall, we find that about a third of the rise in the share of securities in FX reserves is attributable to this growth in central banks’ investment tranches. These findings hold in our full (unbalanced) panel of 109 countries for the period since 1950 and in an alternative analysis using the IMF’s International Reserves and Foreign Currency Liquidity (IRFCL) dataset. 

These results are consistent with the conjecture that the increase in reserve holdings in the decade following the Asian Financial Crisis reflected mercantilist motives. An early study (Aizenman and Lee 2007), based on pre-2001 data, concluded that precautionary motives were more important in the years immediately following the event. More recently, Choi and Taylor (2022) have provided a different view. In a panel of 52 countries over 1980-2007, they show that the accumulation of foreign exchange reserves is associated with real exchange rate depreciation. This supports the idea of mercantilist motives and consequences. However, neither these nor other studies considered the implications for the instrument composition of reserves.

Conclusion and new questions

The instrument composition of reserves has the potential to shed light on other debates in international economics. An example is America’s ‘exorbitant privilege’. Many discussions equate this with preferential demand for US government debt, assuming that foreign reserves held in dollars are invested entirely in US Treasury securities. Although our data do not allow us to observe the currency composition of deposits and securities separately, it is likely that the patterns documented in this column indicate concurrent developments in the demand for US dollar instruments by central banks, given the dollar’s prominence in global reserves. Put differently, given that the alternative to holding US Treasury securities is not just holding foreign Treasury securities but also holding bank deposits, it should not be taken for granted that a majority of global foreign exchange reserves will continue to be held indefinitely into the future in the form of US Treasury bonds. 

References

Aizenman, J and J Lee (2007), “International reserves: precautionary versus mercantilist views, theory and evidence”, Open Economies Review 18(2): 191–214. 

Arslanalp, S, B Eichengreen and C Simpson-Bell (2026), “Our underappreciated international reserve system”, VoxEU.org, 21 March.

Bjorheim, J (2020), Asset Management at Central Banks and Monetary Authorities: New Practices in Managing International Foreign Exchange Reserves, Springer.

Chenard, A, B Eichengreen, E Monnet and F Morvillier (2026), “Not All Foreign Exchange Reserves Are Created Alike”, CEPR Discussion paper No. 21488.

Choi, W J and A M Taylor (2022), “Precaution versus mercantilism: Reserve accumulation, capital controls, and the real exchange rate”, Journal of International Economics 139, 103649.

Eichengreen, B, A Mehl and L Chitu (2018), How global currencies work: past, present, and future, Princeton University Press.

Goldberg, L and O Hannaoui (2026), “The dollar’s status through the lens of foreign exchange reserves”, VoxEU.org, 15 May.

Lu, M Y and Y Wang (2019), “Determinants of currency composition of reserves: a portfolio theory approach with an application to RMB”, IMF Working Paper No. 2019/052.

McCauley, R N and J-F Rigaudy (2011), “Managing foreign exchange reserves in the crisis and after”, BIS Papers Chapters 58: 19–47.

Rodrik, D (2006), “The social cost of foreign exchange reserves”, International Economic Journal 20(3): 253–266.

World Bank (2025), Reserve Management Survey Report 2025: Insights into Public Asset Management – The Fifth Edition, World Bank.