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10 Takeaways From the IMF's COFER Report

By Mark McCormick

NEW YORK ( BBH FX Strategy) -- The International Monetary Fund recently released its report on the composition of official foreign exchange reserves (COFER). Here are 10 key takeaways from the report:

1. The pace of reserve accumulation increased in the fourth quarter, rising 0.3% to $10.196 trillion from $10.163 trillion in Q3. However, the pace of reserve accumulation declined from Q3, which increased 0.9%. From the end of 2010, total reserves increased nearly $500 billion.

2. Of the $10.196 trillion in reserves, the amount of allocated reserves increased by $51 billion. This contrasts with an $18 billion decline in the unallocated reserves, which include China and Taiwan.

3. The dollar holdings rose $49 billion among the total share of allocated reserves. This was a 1.4% rise from Q3 and a 7.6% rise throughout 2011. The dollar's share of the percentage of total allocated holdings also increased steadily through 2011. In Q4, the share of the U.S. allocated reserves increased to 62.1% from 61.8% in Q3.

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4. The euro's holding declined $21 billion among the total share of allocated reserves. However, on the year, the euro's total value was largely unchanged, with a 0.09% increase. Claims in sterling and yen also improved from Q3. Outside the rise in the dollar, total claims in "other" currencies rose $20 billion, marking a 15% increase throughout the year.

5. The euro's share of allocated reserves slipped again in Q4 to 25% from 25.7%. After a decline in Q3, sterling's share remains unchanged at 3.9%. The yen's share also remained unchanged at 3.7%.

6. The change in reserves can stem from a conscious decision to shift allocation decisions, through diversification or intervention. However, to determine the magnitude of the shift in reserves you must adjust the currencies for relative swings over the time period. Over the course of Q4, according to the exchange rates provided by the IMF, the dollar appreciated against all the major currencies (see chart).

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