Many "experts" have been blaming the dollar's current weakness due to "central bank reserve diversification".

What exactly is the central bank reserving?

If you guessed acorns, you're wrong.

Squirrels store acorns. Central banks store money.

Most of the money are foreign currencies. If you run out of your own domestic currency, you can always print more. No need to waste space storing them.

Why stash away foreign currencies?

A country accumulating big foreign currency reserves is the equivalent of a buff dude ripping off his shirt and flexing his big guns.

Having big muscles implies you can protect yourself which attracts the ladies because then they feel protected as well.

Having big foreign currency reserves implies that the country's economy is strong and can protect its own currency which attracts foreign investors.

Foreign reserves also allow central banks to prevent exchange rates between the stored foreign currencies to become too volatile.

For example, let's pretend "Tickle Me Elmos" is a currency and you are Ben Bernanke, the head honcho of the US central bank. Let's say one Tickle Me Elmo is worth $30 USD. This is the exchange rate. You want the exchange rate is to be constant as much as possible. Unfortunately it's the holiday season and Tickle Me Elmos are being bought and sold all over the place. Today, one Tickle Me Elmo is worth $50 USD. The next day, one Ticke Me Elmo is worth $80 USD. The exchange rate becomes too erratic. So what do you do? You control the supply. You buy as many Tickle Me Elmos as you can and you sit on them. The people who still own Tickle Me Elmos actually wish to keep them and don't wish to sell, so the flurry of buying and selling activity decreases which stabilizes the exchange rate.

What is the most popular foreign currency reserve?

Which currencies do the world's countries stash underneath their central bank's mattress? Here's a chart showing what makes up the world's foreign exchange reserves:

Source: IMF Statistics Department COFER database

Who is King of Foreign Reserves?

Which country stores the most moneycorns? The chart below displays the seven countries holding the biggest foreign reserves. It's pretty much a two horse race. China and Japan leave the others in the dust. Btw, the chart is in millions...so China has almost $1 trillion in reserves if they don't already!

Source: IMF Statistics Department COFER database