According to BIS figures published this week global central bank currency reserve diversification has been larger and faster than previously thought. Stories of central banks divesting their dollar holdings have been common in the past two years. However, hard evidence is difficult to come by as official data is only available on a sporadic basis in the form of the BIS and IMF annual report. The latest BIS annual report published this week, therefore, provides an important benchmark to the extent and pace of diversification. In a break from the past, this year the BIS published a series of the dollar’s share of global FX reserves in constant (2003) exchange rates. This controls for the variations in exchange rates that can depress or exaggerate a currency’s share in reserves. For example the weakness of the US dollar in the past three years would tend to deflate the dollar’s share of reserves even if the actual holdings of dollar reserves were constant.
Surprisingly, the BIS numbers are somewhat different to those published in the IMF annual report in September 2004. At the end of June 2004, the BIS estimate that 65.5% of reserves were held in US dollars. While this is not significantly different from the IMF reading of 63.8% at the end of 2003, the pace of reduction in dollar holdings is far quicker in the BIS data set. The share has fallen from 77% in 2001 (see chart for more details). The BIS also shows that the euro has been the main beneficiary of this change, with the share of euro reserves more than doubling since 1999 to 23.6%. (Source: State Street, via our correspondent)
At present the main currencies are not far from their post BW I averages in real effective terms. The NZD, GBP, TWD, SEK and SGD were the only currencies that were more than 15% off their respective averages:
