Dollar's Share of Reserves Rises, More to Come

The most authoritative source of information about the currency allocation of fx reserves, the IMF's COFER data, was just released for Q4 09. As we have suggested, based on the dollar's appreciation, the greenback's share of reserves increased. In Q4 the dollar's share of allocated reserves rose to 62.1% from 61.5%.

The euro's share slipped to 27.4% from 27.8%. The yen's share slipped to 3.0% from 3.2% and sterling's share was steady at 4.3%. The catch-all category of other currencies rose to 3.1% from 3.0%. This includes Canadian dollars and Australian dollars as well as a host of other currencies that are used on the margins like the Norwegian krone.

Valuation often seems to explain the bulk of the volatility in the currency allocations. However, dollar holdings actually increased by about $109 bln in Q4 after a $51 bln increase in Q3 and $40 bln increase in Q2. In Q1 09, the dollar holdings had slipped by about $62 bln.

Given the euro's decline of almost 5.7% against the dollar here in Q1 10 and the 6.3% decline or sterling, while the yen has been flat, it seems likely that the dollar's share of reserve like rose in this quarter too.

The euro fell about 2% in Q4 so the fact that the dollar value of euro reserves rose by $19 bln it suggests that euros were added to reserves too. On the other hand, the yen fell about 3.5% against the dollar and the dollar value of yen reserves fell by $6 bln like simply reflects valuation adjustment. Sterling rose 1.2% in Q4 09, and the dollar value of sterling reserves rose by about $3.5 bln. This too looks mostly like valuation adjustments.

Taking a step back, overall the dollar value of reserves rose to $8.08 trillion dollars. Only 56.5% of the reserves are known by currency allocation. Unallocated reserves rose by about $77 bln in Q4. China, is of course accounts for the bulk of the unreported, but don't forget Taiwan is not a member of the IMF (only countries are) and so its reserves are not allocated either.