Central banks FX reserves make up only a sliver of the demand for long bonds (5+ years of maturity). Long bonds are generally not considered money substitutes,

Central banks FX reserves make up only a sliver of the demand for long bonds (5+ years of maturity). Long bonds are generally not considered money substitutes, so FX reserves have no interest in holding them. Foreign central banks may hold a sizable proportion of short bonds, particularly 3-month T-Bills. But there’s essentially an infinite wall of demand for short bonds at the near zero bound. So maybe loss of reserve status increases borrowing costs from 0.02% to 0.15%. Not exactly a catastrophe for the budget deficit. This is why reserve status is essentially irrelevant to borrowing costs. All developed market governments, regardless of their currency’s reserve status, can borrow cheap in today’s regime.