October 13, 2014

Currency diversification at central banks: moderate but sustained

Higher currency diversification towards the Australian and Canadian Dollar (AUD, CAD): this continues to be the path central banks follow in allocating its official reserves. By the end of 2012 the IMF properly started to publish those two currencies individually, along with the residual ¨other¨ currencies item, all exhibiting moderate but sustained gains since then.

No disaggregated information on the Chinese Renminbi holdings is available but evidence from some individual central bank annual reports suggested the CNY- (the off-shore Yuan)- has become eligible, mainly for time deposits. Its future significance as a reserve asset will depend on China´s progress towards further FX market floating. So far, market turnover for the CNY has increased, ranked ninth but still behind the Mexican Peso in 2013, according to the the well-known BIS triennial survey.

As expected, currency diversification has come at USD and EURs expense, the latter further hurted by exchange rate depreciation. Conversely, USD appreciation vis a vis continuing success in shrinking the US federal deficit over GDP, would lessen, eventually reverse, USD substitution trends.


Currency shares of allocated international reserves
(As of end of June, each year)




2009


2013


2014
*Netting out exchange rate gains/losses  2009-2014
USD
62,81
61,86
60,66
59.93
EUR
27,57
23,85
24,19
25.02
GBP
4,28
3,82
3,88
3.57
JPY
3,02
3,84
4,03
4.41
CHF
0,12
0,26
0,27
0.23
AUD+CAD
n.a.
3,48%
3,92%
3.83
Other
2,20
2,89
3,05
3.01

100
100
100






CAD
n.a.
1.79
2.02
2.05
AUD
n.a.
1.69
1.90
1.78





AUD+CAD+Other
2.20
6.37
6.97
6.84
Source: IMF Currency Composition of Official Foreign Exchange Reserves (COFER, Sept. 2014)
*Author´s calculations, assumes no exchange rate change for ¨other ¨, with the USD as the numeraire.






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