IMF’s Reserve Data: Dollar Share Little Changed, Yen Share Jumps, Helped By Valuation

The IMF provides the most authoritative data
on central bank reserves. 
The composition is published at the end of the quarter for the preceding
quarter.  At the end of last week, its COFER report was published with data through the end of June
2016.   This Great Graphic
from the IMF provides
2.5 years of the composition of allocated reserves.  

Beginning at the highest level, we note that
the dollar value of global reserves increased by $55 bln in Q2 to $10.993
trillion.
  This is an important
qualification.  The IMF reports its reserve figures in terms of dollar value.  

There is only one currency not impacted by the
changes in valuation, and that, of course,
is the US dollar itself.
  Dollar holdings (among reserves where the
allocation has been declared) increased
by almost $19.5 bln to $4.759  trillion.  The dollar’s share of
reserves was little changed at 63.4% from
Q1’s 63.5% share.  

The dollar value of yen reserves rose by 16.3%
to $340.6 bln. 
The share of reserves denominated in yen rose to 4.54%
from 4.07%.  This is the highest in
more than a decade.  However, the data has been
inflated
by a 9% appreciation of the yen.  
The takeaway here is that the yen’s share of reserves rose but closer to half the pace suggested when
allowances are made for valuation
adjustments.   

Sterling fell 7.3% in the three months through the end of June. 
The dollar value of sterling reserve rose by almost 2.4% in Q2 16 to $352.06
bln.  If it were simply a matter of
shifting valuations, the dollar value of sterling reserve would have fallen by
about $25 bln.  The overall increase (~$7 bln) reflects an increase in the
accumulation of sterling reserve assets.  We suspect that some reserve managers want to adjust their holdings to maintain a predetermined
allocation.  The loss of sterling’s value then would encourage such
managers to buy more.  

The dollar value of euro reserves rose by
$5.45 bln to $1.515 trillion.
 
The euro slipped 2.4% against the dollar in Q2.  This suggest that there was a small amount of net buying of euros
by reserve managers.  The euro’s share eased to almost 20.2% from
20.3%.  The euro’s share of global reserves has been fairly stable since
the beginning of last year.  It has been between 19.7% and 20.6% of allocated
reserves.  

The Canadian dollar was flat against the US
dollar in Q2 (it rose 0.6%). 
The shift in dollar valuation of
Canadian dollar reserves is primarily a result of more Canadian dollars having been bought.  The value of the reserves
rose to $149 bln from $141.1 bln.     It share of allocated
reserves edged up from 1.96% to 1.98%.  

Australian dollar reserves were worth $142.99
bln at the end of Q2, up from $138.42 bln at the end of Q1. 
However,
whereas the Canadian dollar was flat in
the quarter, the Australian dollar lost 2.7%. This
means
that if it were purely a
function of valuation, the Australian dollar reserves would have fallen by
about $4 bln.  This suggests that
reserve managers added small amounts Australian and Canadian dollars to their
holdings.  

There is another development that is
noteworthy.
  As part of the negotiations that led to China’s inclusion
in the SDR, the PRC agreed to provide the
currency allocation of part of its reserves.  Over the past year or so,
this has produced a sharp drop in the unallocated reserves and an increase in
the allocated reserves.  

At the end of Q1, the dollar value of
unallocated reserves stood at $5.37 trillion or 46.9% of all reserves. 

In Q2 16, the dollar value of unallocated reserves fell to $3.84 trillion or
31.7%.  When coupled with the fairly stable currency shares of the
allocated reserves suggests China’s reserve holdings were largely in line with
global averages. 

With the Chinese yuan now included in the
IMF’s SDR, starting with Q3 COFER data, which will not be available until the
end of March 2017, the IMF will break out
the yuan’s share of global reserves.
 
Currently, the yuan is included
in the omnibus “other
currencies” category.  At the end of Q2, the “other currencies”
account for about 3.04% of allocated reserves, down from almost 3.2% in Q1 16.   

A year ago, when the IMF announced its
decision to include the yuan in the SDR, it estimated that about 1% of global
reserves were in the yuan.
The yuan’s share of global reserves is smaller
than Australian and Canadian dollars’ share. 

We are not
convinced
that inclusion of the yuan in the SDR will necessarily
increase the use of the yuan as reserve assets

The yen’s share of global reserves, for example, remains minor, even with the
recent increase.  At the end of 1995, the yen accounted for nearly 6.8% of
global reserves.  As we have seen its share as of the end of Q2 16 was
4.5%.  We suspect that for the most part, reserve managers will not accept
a fait accompli by the IMF and boost yuan reserves simply because the yuan is included in the SDR.  

The security, liquidity,
and transparency of the yuan and the central government bond market (where
reserves are expected to be invested) are
important considerations.
At the end of September Caixin reported that
China’s Ministry is considering trading government debt securities, in addition
to its role as the issuer.   
The ostensible reason is to increase market liquidity.  Turnover ratio
(volume of bonds available for trading relative
to
the volume of the outstanding bonds, sort of like free-float) is
estimated to be about 5% of the US.  



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