ECB sells some dollar assets, cuts weight of dollar in reserves

The European Central Bank (ECB) reduced the share of U.S. dollar assets in its foreign exchange reserves last year, describing the move as part of a routine portfolio rebalancing. During the first quarter of 2025, the ECB sold a small portion of its dollar holdings and reinvested the proceeds entirely into Japanese yen assets. The transaction generated a gain of €909 million. As a result, the dollar’s share of the ECB’s foreign currency reserves declined to 78% from 83% a year earlier, although part of the drop reflected the depreciation of the dollar. ECB data showed that dollar holdings fell to $50.9 billion from $51.9 billion, while yen holdings increased significantly. The bank emphasized that the shift was not a reaction to market turbulence or U.S. tariff announcements but rather a standard adjustment to align reserves with target allocations. For the full year, the ECB reported another financial loss of €1.3 billion, an improvement from the €7.9 billion loss the previous year. The losses stem largely from the lingering effects of its past stimulus programs, known as quantitative easing, launched before and during the COVID-19 pandemic. As interest rates have risen, the ECB must now pay higher interest on excess liquidity—around €2.4 trillion—still in the financial system. Despite carrying forward roughly €10.5 billion in accumulated losses, the ECB expects a return to profit this year or next. Unlike commercial banks, central banks can operate with prolonged losses because their primary mandate is monetary policy and price stability, not profit generation.