In Troubling Sign for the US, Reserve Managers Plow Into Chinese Yuan, Dump Dollars

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By Tyler Durden | 30 September 2018

ZERO HEDGE — The IMF released the Currency Composition of Official Foreign Exchange Reserves (COFER) data for Q2 2018 on Friday. The total of reserves that are broken down by currency went up by $123BN, and unallocated reserves fell by $243BN. The most notably observation in the COFER report is that reserve managers actively decreased their allocation to USD – more than offsetting the effect of dollar appreciation – while at the same time adding significantly to non-USD allocations and especially to Chinese Yuan reserves.

Commenting on the report, Steven Englander from Standard Chartered notes that there are two possible big pieces of news in the Q2 COFER data, but only one that is likely to be meaningful.

The meaningful news is the continued run-up in CNY in reserves portfolios, even in a quarter when CNY depreciated sharply. This suggests increasing demand among reserves managers for CNY in their portfolios. Most likely this reflects the importance of CNY in trade and initiatives taken by the Chinese government to internationalize CNY. This buying is probably long-term in nature, as CNY is not yet sufficiently liquid in all time zone and EM selling of CNY when EM is under pressure could backfire. […]

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