The IMF has released its most recent data on reserve holdings in its COFER database. No big surprises in the data, at least relative to my previous post on this subject. The US dollar (USD) share in total reserves (both those known and unknown in currency composition)is trending downward from a peak in 2001q1, stabilizing in 2005.
Source: Shares from IMF COFER database, March 31, 2006, and dollar index from Fed (via St. Louis Fed FREDII).
The problem with this interpretation is that the “unallocated share” — the amount of currencies reported in the IMF’s International Financial Statistics but not by reporting central banks — is rising. Under the presumption that most of these reserves are in dollars, the green line represents the upper bound for the dollar share. In this case, the dollar share has been fairly constant, and indeed has been rising slightly since 2004q4. In all these comparisons, valuation issues have to be kept in mind. The dollar rose in value during 2005 (the blue line is the Fed’s nominal dollar index (against other major currencies). Hence, the upper bound of the quantity share of dollars in total reserves might have declined (the dollar index rose by about 5% over 2005, while the upper bound of dollar value share of reserves rose by about 2 percentage points).
For speculation on longer term prospects for the dollar, see this paper by myself and Jeffrey Frankel.