Perhaps the most startling thing about the new COFER (Currency Composition of Official Foreign Exchange Reserves) data on reserves released by the IMF is not the declining dollar share in total reserves, but rather the fact that reserves have risen....
The change is entirely due to the upward revision in unallocated reserves by emerging market and LDC central banks. This point is shown in Figure 1. Figure 1:
Total reserves, in millions of US dollars (black), emerging market central banks from December 30 (bold blue), from September 30 (teal); emerging market unallocated reserves from December 30 (bold red), from September 30 (purple). NBER defined recession dates shaded gray, assumes recession ends 09Q2. Source:COFER
, September 30 and December 30, 2009, and NBER.
Total reserves were revised up $381 billion in 2009Q2, as were total emerging market/LDC reserves, and unallocated emerging market/LDC reserves. The revision in total reserves constituted a 5.5% change – quite substantial.
A straightforward interpretation of the data also reveals a continued -- and exacerbated -- decline in the identified US dollar share of total reserves.
US dollar share out of total
reserves from September 30 (red), and from December 30 (blue). Source:COFER
, September 30, and December 30, 2009, and NBER.
Question: How would you predict the fortunes of the dollar, it it likely to appreciate or depreciate, when global foreign currency reserves are up but the dollar share of the reserves is down?