At the end of last week, the IMF reported the latest reserve figures for Q4 2012. Overall currency reserves stood at $10.9 trillion at the end of last year, up $734.5 bln over the course of the year. Most central banks provide the currency allocation of their reserves. There are two notable exceptions: China, which regards the information as a state secret and Taiwan, which is not a member of the IMF. Unallocated reserves total $4.85 trillion, the lion’s share accounted for by these two nations.
In terms of percentages of allocated reserves, the dollar’s share slipped to 61.9% from 62.1%. The euro’s share was unchanged at 23.9%. The yen’s share eased to 3.9% from 4.1%.
A more nuanced look at what took place is possible by looking at the change in amounts rather than percentages. For example, the decline in the share of allocated reserves account for by the dollar does not mean that a single dollar was sold. To the contrary, central banks added $31.4 bln to their reserves in Q4 and $247 bln all of last year. Of the 2012 increase, $78.5 bln was accounted for by the high income countries (what the IMF calls “advanced”). The means that developing countries were net buyers of dollars and hardly diversifying away from the greenback.
Allocated reserves held in euros rose $20.6 bln in Q4, this is after pullback a $11.5 bln decline in Q3 and are now the highest since Q2 2011. Last year, the high income countries bought $106 bln worth of euros for reserves. However, developing countries sold almost $45 bln of euros over the could of 2012; reducing euro holdings in each quarter, except for the Q1 12.
In Q4 2012, sterling and yen holdings were pared by $2.7 bln and $8.5 bln respectively. Nearly the entire $26.7 bln that sterling reserves rose in 2012 could be accounted for by the high income countries ($21.2 bln). Of the $33 bln increase in yen holdings, the high income countries accounted for a little more than 2/3.
High income countries are also account for the lion’s share of the diversification into the “other” category, which is dominated by the Australian and Canadian dollars. The share of allocated reserves accounted for by this category stands at a record 6.1% at the end of last year. Roughly $54.8 bln was added to this category last year, of which $40.5 bln was purchased by the high income countries. In either Q1 or Q2 this year, the IMF will break out the Australian and Canadian dollars from the “other category”, to better reflect what is actually taking place. It is an accounting function, not normative in the sense for prescribing what countries ought to do.
Lastly, despite the relatively low volatility in the foreign exchange market, the IMF’s data needs to be adjusted for valuation swings. The figures used for the IMF’s calculations show that the dollar rose 2.5% against sterling and the yen by 11.5% in Q4 12, while it appreciated by 2.1% against the euro. Over the course of 2012, the dollar slipped 2% against sterling and euro, while appreciated about 11.4% against the yen.
This piece is cross-posted from Marc to Market with permission.