That would be my summary of the IMF’s latest data on the currency composition of the world’s reserves. My headline — "record dollar reserve growth and little real evidence of diversification" — is more consistent with the Dow Jones story on the IMF data than with the Bloomberg story on the same subject.
Of course, my summary is subject to two huge caveats. One: China, the country that matters the most, doesn’t report data on the currency composition of its reserves to the IMF. Two, the Gulf, whose combined official asset growth now trails only China, doesn’t report much data to the IMF, both because the Gulf’s central banks don’t seem to report data on their reserves and because most of the Gulf’s foreign asset growth comes from their sovereign funds.
But the IMF data still paints a stunning picture.
The emerging economies that do report didn’t reduce the dollar share of their reserves in any significant way, whether in q4 or over the course of 2007. Given the huge increase in the pace of their reserve growth, that meant buying a ton of dollars. Keeping the dollar share of their reserves constant meant that $394 billion of the $577 billion overall increase in their reserves stayed dollars. 68% of the growth in their reserve flowed into dollars over the course of the year, even though the dollar’s share of their total reserves is only around 60%. For q4, 74% of the $184 billion increase in their reserves flowed into the dollar – or $134 billion. They had to buy proportionately more dollars to make up for the dollar’s slide v. other currencies.
The majority of the world’s reserve growth though comes from emerging economies that do not report, at least when the non-reserve foreign assets of the Saudi central bank are added in. Let’s assume the central banks of emerging economies that do not report data acted roughly like the emerging economies that do report data, i.e. they held the dollar share of their reserves roughly constant.
If that is true, total reserve growth — counting about $75b from Saudi non-reserve foreign assets growth and another $70b from the Chinese state banks and the China investment Corporation CIC – reached $1330b and dollar reserve growth reached an estimated $960b.