Chapter

Appendix I International Reserves

Author(s):
International Monetary Fund
Published Date:
September 1986
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This appendix examines developments in international reserves and liquidity. First, it considers the recent evolution of holdings of official reserve assets. Second, it reviews the currency composition and distribution of international reserves. Finally, the placement of official holdings of foreign exchange reserves is reviewed.

RECENT EVOLUTION OF OFFICIAL RESERVE ASSETS

Total international reserves measured in terms of SDRs decreased by over 2 percent during 1985, to SDR 686 billion by the end of the year. The change in total reserves resulted from declines both in the holdings of non-gold reserves and in the market value of official holdings of gold. The lower holdings of non-gold reserves resulted from reduced holdings of Fund-related reserve assets by both industrial and developing countries and from a decline in the SDR value of foreign exchange held by developing countries. The value of official holdings of gold fell as a result of a 5 percent decrease in the market price of gold in terms of the SDR that more than offset a slight increase in the quantity of official gold holdings.

NON-GOLD RESERVES

At the end of 1985, non-gold reserves totaled SDR 404 billion, which was nearly the same total as at the end of 1984. While the non-gold reserves of the industrial countries and of the capital exporting developing countries increased slightly, the holdings of the capital importing developing countries fell by SDR 5 billion (4 percent). Moreover, those capital importing developing countries which have experienced debt-servicing difficulties saw their non-gold reserves decline by SDR 5 billion (11 percent).

FOREIGN EXCHANGE RESERVES

Foreign exchange reserves remained virtually constant between the end of 1984 and 1985 at SDR 347 billion (Table 1.1), reflecting a slowing down in the accumulation of new reserves and capital losses in the SDR value of existing holdings, which are denominated predominately in U.S. dollars. This stability in the SDR value of foreign exchange reserves is in sharp contrast to the 10 percent and 12 percent increases in 1983 and 1984, respectively. The holdings of industrial countries grew by over SDR 3 billion, which nearly matched the declines in holdings of developing countries.

Table 1.1.Official Holdings of Reserve Assets, End of Year 1980–85 and End of March 19861(In billions of SDRs)
198019811982198319841985March

1986
All countries
Total reserves excluding gold
Fund-related assets
Reserve positions in the Fund16.821.325.539.141.638.738.0
SDRs11.816.417.714.416.518.218.6
Subtotal, Fund-related assets28.637.743.253.558.056.956.6
Foreign exchange292.8292.5284.5307.3347.8346.7332.8
Total reserves excluding gold321.4330.2327.7360.8405.8403.6389.4
Gold2
Quantity (millions of ounces)953.0953.3948.7947.4946.3948.9948.7
Value at London market price440.5325.5392.9345.2297.6282.5286.7
Industrial countries
Total reserves excluding gold
Fund-related assets
Reserve positions in the Fund10.713.517.125.627.225.224.6
SDRs8.911.914.111.513.414.915.5
Subtotal, Fund-related assets19.625:531.137.140.640.140.1
Foreign exchange164.7159.6153.2167.6183.9187.2182.7
Total reserves excluding gold184.3185.1184.4204.7224.5227.3222.8
Gold2
Quantity (millions of ounces)787.9787.6787.3786.6786.0786.5786.5
Value at London market price364.2269.0326.1286.6247.2234.1237.7
Developing countries
Total reserves excluding gold
Fund-related assets
Reserve positions in the Fund6.17.88.413.614.313.513.4
SDRs2.94.53.72.93.13.33.1
Subtotal, Fund-related assets9.012.312.116.517.416.916.5
Foreign exchange128.0132.8131.2139.7163.8159.5150.7
Total reserves excluding gold137.1145.1143.3156.1181.3176.3166.6
Gold2
Quantity (millions of ounces)165.1165.6161.4160.8160.3162.4162.2
Value at London market price76.356.666.858.650.448.349.0
Capital importing developing countries
Total reserves excluding gold
Fund-related assets
Reserve positions in the Fund3.23.32.73.42.82.62.6
SDRs2.33.72.41.81.92.11.9
Subtotal, Fund-related assets5.57.05.15.24.74.74.5
Foreign exchange83.888.385.599.9127.4122.3118.5
Total reserves excluding gold89.495.490.8105.1132.0126.9123.0
Gold2
Quantity (millions of ounces)144.6143.1138.6137.8137.2139.4139.1
Value at London market price66.848.957.450.243.141.542.1
Capital importing developing countries
with debt-servicing problems
Total reserves excluding gold
Fund-related assets
Reserve positions in the Fund1.82.01.21.21.00.80.8
SDRs1.21.90.70.50.50.70.6
Subtotal, Fund-related assets3.13.91.91.81.51.51.4
Foreign exchange36.632.121.926.742.537.936.7
Total reserves excluding gold39.736.023.828.644.139.438.2
Gold2
Quantity (millions of ounces)54.051.447.246.347.347.448.4
Value at London market price24.917.519.616.914.914.114.6
Source: International Monetary Fund, International Financial Statistics.

“Fund-related assets” comprise reserve positions in the Fund and SDR holdings of all Fund members and Switzerland. Claims by Switzerland on the Fund are included in the line showing reserve positions in the Fund. The entries under “Foreign exchange” and “Gold” comprise official holdings of those Fund members for which data are available and certain other countries or areas, including Switzerland. For classification of countries in groups shown here, see Appendix IX.

One troy ounce equals 31.103 grams. The market price is the afternoon price fixed in London on the last business day of each period.

Source: International Monetary Fund, International Financial Statistics.

“Fund-related assets” comprise reserve positions in the Fund and SDR holdings of all Fund members and Switzerland. Claims by Switzerland on the Fund are included in the line showing reserve positions in the Fund. The entries under “Foreign exchange” and “Gold” comprise official holdings of those Fund members for which data are available and certain other countries or areas, including Switzerland. For classification of countries in groups shown here, see Appendix IX.

One troy ounce equals 31.103 grams. The market price is the afternoon price fixed in London on the last business day of each period.

The reduction in the foreign exchange reserves of the capital importing developing countries in 1985 (SDR 5 billion) was even larger than that experienced in 1982. In both periods, the decline in reserves mainly reflected developments in capital importing countries with debt-servicing difficulties. In the Western Hemisphere, for example, the foreign reserves of such countries fell by SDR 7 billion (29 percent) in 1982 and by SDR 5 billion (14 percent) in 1985.

HOLDINGS OF FUND-RELATED RESERVE ASSETS

Holdings of Fund-related reserve assets decreased by 2 percent in 1985 to SDR 57 billion. This reflected a SDR 3 billion decline in holdings of reserve positions in the Fund that more than offset the increase of SDR 2 billion in holdings of SDRs (Table I.1). Reserve positions in the Fund, which comprise the reserve tranche position and the creditor position, fell in 1985 for the first time in the 1980s. As the cumulative total stock of SDRs has remained constant since the last allocation in 1981, the increase in holdings of SDRs by member countries corresponded to a decline in Fund holdings of SDRs. The decline in members’ holdings of SDRs that occurred in 1983 mainly reflected the fact that 22 percent of the increase in quotas under the Eighth General Review of Quotas was paid in SDRs; hence, member countries’ holdings of SDRs declined and their reserve positions in the Fund increased. These SDR payments were made in December 1983 and amounted to SDR 6 billion. Payments in SDRs for quota purposes totaled SDR 0.2 billion in 1984 and less than SDR 0.1 billion in 1985.

GOLD

Gold valued at current market prices (in terms of the SDR) declined by 5 percent in 1985, to SDR 283 billion. This decrease primarily reflected a fall in the market price of gold from SDR 315 an ounce at the end of 1984 to SDR 298 an ounce at the end of 1985. The physical stock of gold has remained fairly constant since 1972, with the exception of a 9 percent decline in 1979, which occurred mainly because members of the European Monetary System deposited 20 percent of their gold holdings with the European Monetary Cooperation Fund (EMCF) in exchange for European currency units (ECUs). Both the physical holdings of gold and its distribution between industrial and developing countries have changed very little during the period 1980–85. Of a total physical stock of gold reserves of 949 million ounces at the end of 1985, industrial countries held 83 percent and developing countries 17 percent.

DEVELOPMENTS IN FIRST QUARTER OF 1986

During the first quarter of 1986, total international reserves fell by SDR 10 billion, reflecting a decline in non-gold reserves that more than offset a rise in the market value of official holdings of gold. The decrease in non-gold reserves was due to a reduction in foreign exchange holdings (SDR 14 billion). While both industrial and developing countries experienced declines in their holdings of non-gold reserves, the fall in the reserves of developing countries during the first quarter of 1986 was nearly twice the decline experienced during all of 1985.

The market price of gold measured in terms of the SDR rose slightly in the first quarter of 1986. Since the total physical holdings of gold remained virtually unchanged, the official holdings of gold valued at current market prices rose by over 1 percent to SDR 287 billion at the end of the quarter.

CURRENCY COMPOSITION OF RESERVES

During 1985, the diversification of the currency composition of foreign exchange reserves that has been evident since the mid-1970s continued. The share in total identified foreign exchange reserves of reserve assets denominated in the U.S. dollar fell by 5 percentage points, to 65 percent, whereas the share of almost all other currencies increased (Table 1.2). The diversification of the currency composition of foreign exchange reserves during the past decade can be divided into several subperiods. Between 1975 and 1977, the currency composition of reserves remained relatively stable; thereafter, the share of the U.S. dollar declined from 80 percent to 69 percent when the U.S. dollar depreciated sharply between 1977 and 1980. However, as the U.S. dollar began to appreciate relative to the other major currencies in the early 1980s, this diversification away from the U.S. dollar was partly reversed, and the share of the U.S. dollar in reserves rose to 72 percent by 1983. Since 1983, the share of U.S. dollar-denominated reserve instruments in identified foreign exchange reserves has declined by 7 percentage points, as reserve instruments denominated in deutsche mark and Japanese yen became increasingly important in reserve portfolios, especially those of industrial countries.

Table I.2.Share of National Currencies in Total Identified Official Holdings of Foreign Exchange, End of Year 1977–851(In percent)
Memorandum:

ECUs Treated

Separately2
1977197819791980198119821983198419851985
All countries
U.S. dollar80.378.275.269.073.171.772.270.565.156.4
Pound sterling1.81.82.13.12.22.52.73.13.22.9
Deutsche mark9.311.212.815.613.412.912.012.815.514.2
French franc1.31.21.41.81.41.31.11.11.21.1
Swiss franc2.32.22.63.32.82.82.42.12.42.2
Netherlands guilder0.90.91.11.41.21.20.90.81.01.0
Japanese yen2.53.43.74.54.34.75.05.77.67.0
Unspecified currencies31.61.11.21.41.42.83.53.83.915.2
Industrial countries
U.S. dollar89.486.483.477.678.776.776.071.663.248.9
Pound sterling0.90.70.80.80.70.80.91.62.01.7
Deutsche mark5.57.99.714.413.112.512.914.719.216.4
French franc0.30.40.60.50.50.40.30.40.50.4
Swiss franc0.81.21.51.81.81.81.51.41.81.5
Netherlands guilder0.60.50.60.70.80.70.50.61.00.9
Japanese yen1.82.32.63.53.74.45.16.18.57.3
Unspecified currencies30.70.50.70.60.72.82.93.53.922.9
Developing countries4
U.S. dollar70.966.666.360.167.166.568.069.267.567.5
Pound sterling2.83.23.45.43.84.44.84.84.74.7
Deutsche mark13.315.916.216.713.913.311.110.610.910.9
French franc2.32.32.23.12.52.42.01.92.12.1
Swiss franc3.93.63.84.93.93.93.63.03.13.1
Netherlands guilder1.21.51.62.01.61.71.31.01.11.1
Japanese yen3.24.94.85.65.05.14.95.36.56.5
Unspecified currencies32.51.91.72.22.22.84.24.14.04.0
Source: International Monetary Fund, various publications, and staff estimates.

Starting with 1979, the SDR value of European currency units (ECUs) issued against U.S. dollars is added to the SDR value of U.S. dollars, but the SDR value of ECUs issued against gold is excluded from the total distributed here. For classification of countries in groups shown here, see Appendix IX. Only selected countries that provide information about the currency composition of their official holdings of foreign exchange are included in this table.

This column is for comparison and indicates the currency composition of reserves when holdings of ECUs are treated as a separate reserve asset, unlike the earlier columns starting with 1979 as is explained in the preceding footnote. The share of ECUs in total foreign exchange holdings was 10.9 percent for all countries and 20.2 percent for the industrial countries in 1985.

This residual is equal to the difference between total identified reserves and the sum of the reserves held in the seven currencies listed in the table.

The calculations here rely to a greater extent on Fund staff estimates than do those provided for the group of industrial countries.

Source: International Monetary Fund, various publications, and staff estimates.

Starting with 1979, the SDR value of European currency units (ECUs) issued against U.S. dollars is added to the SDR value of U.S. dollars, but the SDR value of ECUs issued against gold is excluded from the total distributed here. For classification of countries in groups shown here, see Appendix IX. Only selected countries that provide information about the currency composition of their official holdings of foreign exchange are included in this table.

This column is for comparison and indicates the currency composition of reserves when holdings of ECUs are treated as a separate reserve asset, unlike the earlier columns starting with 1979 as is explained in the preceding footnote. The share of ECUs in total foreign exchange holdings was 10.9 percent for all countries and 20.2 percent for the industrial countries in 1985.

This residual is equal to the difference between total identified reserves and the sum of the reserves held in the seven currencies listed in the table.

The calculations here rely to a greater extent on Fund staff estimates than do those provided for the group of industrial countries.

In the calculation of these shares, the SDR value of ECUs issued against gold is not counted as part of foreign exchange reserves, but the SDR value of ECUs issued against U.S. dollars is counted as part of the holdings of U.S. dollars. The overall picture regarding trend changes in the currency composition of foreign exchange reserves is similar if ECUs, which were introduced in 1979 and accounted for 11 percent of total foreign exchange reserves at the end of 1985, are treated separately. Under this alternative treatment of ECUs, the share of the U.S. dollar declined from 77 percent in 1977 to 55 percent in 1980; it then increased to 58 percent in 1981 and stayed at that level through 1984, before declining to 56 percent in 1985.

The changes in the SDR value of foreign exchange reserves can also be decomposed into price and quantity changes for each of the major currencies (including the ECU) and for the total of the identified foreign exchange reserves (Table 1.3). In 1985, total identified foreign exchange reserves fell by SDR 4 billion, which was the result of a positive quantity change of SDR 3 billion and a negative price change of SDR 7 billion. This negative price change reflects a reversal of the pattern observed in 1984, when the price change had been positive for the U.S. dollar and negative for all other major currencies. In 1985, in contrast, the fall in the SDR value of the U.S. dollar resulted in a large negative price change (SDR 22 billion) for U.S. dollar reserves that was only partially compensated by the positive price changes for all other major currencies, including SDR 6 billion for the deutsche mark and SDR 2 billion for the Japanese yen.

Table 1.3.Currency Composition of Official Holdings of Foreign Exchange, End of 1980-End of 19851(In millions of SDRs)
198019811982198319841985
U.S. dollar
Change in holdings5,8899,119-4,55412,96922,259-18,517
Quantity change559-6,350-13,3814,12910,0793,273
Price change5,33115,4698,8288,84012,187-21,790
Year-end value161,299170,418165,864178,834201,069182,576
Pound sterling
Change in holdings2,923-1,8656199062,062278
Quantity change2,298-9791,2731,2683,440-693
Price change625-886-654-362-1,378971
Year-end value7,4725,6076,2267,1329,1949,472
Deutsche mark
Change in holdings9,770-4,310-2,074-2927,0297,558
Quantity change12,774-2,494-2,0652,2409,9841,899
Price change-3,003-1,815-9-2,532-2,9555,659
Year-end value38,04333,73331,65931,36738,39645,954
French franc
Change in holdings1,266-674-358-309340319
Quantity change1,585-587170566-140
Price change-319-616-365-479-226459
Year-end value4,2923,6183,2602,9513,2913,609
Swiss franc
Change in holdings2,357- 1,044-179-504-15631
Quantity change2,868-1,517171-266650-79
Price change-511474-350-238-665710
Year-end value8,1177,0736,8946,3906,3757,006
Netherlands guilder
Change in holdings928-402-50-533147619
Quantity change1,159-226-23-275339261
Price change-231-176-26-259-191358
Year-end value3,3162,9142,8642,3312,4783,096
Japanese yen
Change in holdings2,893-1107551,3674,1845,406
Quantity change1,033-2338485804,3883,266
Price change1,859123-92786-2042,140
Year-end value11,00110,89111,64613,01317,19622,602
European currency unit
Change in holdings14,952-4,727-5,0074,074-3,959-297
Quantity change17,59019-2,5988,441-429-4,551
Price change-2,638-4,746-2,408-4,366-3,5304,254
Year-end value47,65842,93137,92541,99938,04037,742
Total identified holdings2
Change in holdings40,978-4,012-10,84717,67732,048-4,005
Quantity change39,866-11,839-15,77016,28729,0103,325
Price change1,1127,8274,9241,3913,038-7,240
Year-end value281,197277,185266,338284,015316,063312,058
Total official holdings3
Change in holdings43,118-423-7,89222,85040,455-1,071
Year-end value292,766292,343284,450307,301347,755346,684
Source: Fund staff estimates.

The currency composition of foreign exchange is based on the Fund’s currency survey and on estimates derived mainly, but not solely, from official national reports. The numbers in this table should be regarded as estimates that are subject to adjustment as more information is received. Quantity changes are derived by multiplying the change in official holdings of each currency from the end of one quarter to the next by the average of the two SDR prices of that currency prevailing at the corresponding dates. This procedure converts the change in the quantity of national currency from own units to SDR units of account. Subtracting the SDR value of the quantity change so derived from the quarterly change in the SDR value of foreign exchange held at the end of two successive quarters and cumulating these differences yields the effect of price changes over the years shown.

Each item represents the sum of the eight currencies above.

Include a residual whose currency composition could not be ascertained, as well as holdings of currencies other than those shown.

Source: Fund staff estimates.

The currency composition of foreign exchange is based on the Fund’s currency survey and on estimates derived mainly, but not solely, from official national reports. The numbers in this table should be regarded as estimates that are subject to adjustment as more information is received. Quantity changes are derived by multiplying the change in official holdings of each currency from the end of one quarter to the next by the average of the two SDR prices of that currency prevailing at the corresponding dates. This procedure converts the change in the quantity of national currency from own units to SDR units of account. Subtracting the SDR value of the quantity change so derived from the quarterly change in the SDR value of foreign exchange held at the end of two successive quarters and cumulating these differences yields the effect of price changes over the years shown.

Each item represents the sum of the eight currencies above.

Include a residual whose currency composition could not be ascertained, as well as holdings of currencies other than those shown.

Holdings of ECUs were virtually unchanged in 1985, after a decline of SDR 4 billion in 1984. ECUs are issued by the EMCF to the central banks of the members in exchange for the deposit of 20 percent of the gold holdings and 20 percent of the gross U.S. dollar holdings of these institutions. These swaps are renewed every three months, and changes in the members’ holdings of U.S. dollars and gold, as well as in the market price of gold and in the value of the U.S. dollar, affect the amount of ECUs outstanding.1 Quantity changes in ECU holdings, therefore, depend on the evolution of its two components, gold and U.S. dollars.2

The decline in holdings of ECUs in 1985 was much smaller than in 1984. In 1984, there was a relatively small negative quantity change (SDR 0.4 billion) and a negative price change that was a result of an increase in the ECU value of the SDR (owing to the appreciation of the U.S. dollar with respect to the SDR). In 1985, however, there was a large negative quantity change that was offset by a positive price change associated with an increase in the SDR value of the ECU (owing to the depreciation of the U.S. dollar with respect to the SDR).3

There are significant differences in the pattern of currency diversification between industrial and developing countries (Table 1.2). Over the period since 1977 the industrial countries have experienced greater diversification of reserve holdings than developing countries. In the reserve portfolios of the industrial countries, the share of reserves denominated in the U.S. dollar fell by 26 percentage points during this period, and the shares of the deutsche mark and the Japanese yen increased by 14 percentage points and 7 percentage points, respectively. In contrast, developing countries have shown more limited diversification. For example, their share of instruments denominated in U.S. dollars in foreign exchange reserves fell by only 3 percentage points. Moreover, the share of instruments denominated in deutsche mark also fell by 2 percentage points. In contrast, the shares of the pound sterling and the Japanese yen increased by 2 and 3 percentage points, respectively.

PLACEMENT OF OFFICIAL HOLDINGS OF FOREIGN EXCHANGE RESERVES

While official holdings of foreign exchange changed very little in 1985, the continuing diversification of the currency composition of reserves was reflected in the placement of official holdings. For example, while U.S. dollar claims on residents of the United States fell by SDR 14 billion, claims on residents of other countries denominated in the debtor’s own currency increased by SDR 10 billion (Table I.4). In addition, although total identified official holdings of Eurocurrencies declined only slightly during 1985, the relative importance of Eurodollars in Eurocurrency holdings has continued the decline that has been evident since the late 1970s. During the period 1978-85, official Eurodollar holdings have fallen from nearly 70 percent of official Eurocurrency holdings to less than 60 percent.

Table I.4.Placement of Official Holdings of Foreign Exchange Reserves, End of Year 1978-851(In billions of SDRs)
19781979198019811982198319841985
Liabilities of residents of the
United States to foreign official
institutions120109123139149163178159
Items not included in reported
official U.S. dollar holdings2-7-13-22-36-50-52-46-41
Reported official U.S. dollar
claims on residents of the
United States1139610110399111132118
Reported official claims on
residents of other countries
denominated in the debtor’s
own currency2730413938404656
Subtotal140126142142137151178174
Identified official holdings
of Eurocurrencies
Eurodollars4749545856576660
Other currencies2125343230333841
Subtotal687488908690104101
European currency units33484338423838
Residual31617151824242834
Total official holdings
of foreign exchange224250293292284307348347
Sources: International Monetary Fund, International Financial Statistics; U.S. Treasury Department, Bulletin; and Fund staff estimates.

Official foreign exchange reserves of Fund members and certain other countries and areas, including Switzerland. Beginning in April 1978, Saudi Arabian holdings exclude the foreign exchange cover against a note issue, which amounted to SDR 4.3 billion at the end of March 1978.

Mainly U.S. dollars deposited with the European Monetary Cooperation Fund in connection with the issuance of European currency units, U.S. obligations to official institutions in countries not reporting to the Fund, and U.S. obligations that are not classified as foreign exchange reserves in the reports provided to the Fund by the holders.

Part of this residual occurs because some member countries do not classify all the foreign exchange claims that they report to the Fund. Includes identified official claims on the International Bank for Reconstruction and Development, on the International Development Association, and the statistical discrepancy.

Sources: International Monetary Fund, International Financial Statistics; U.S. Treasury Department, Bulletin; and Fund staff estimates.

Official foreign exchange reserves of Fund members and certain other countries and areas, including Switzerland. Beginning in April 1978, Saudi Arabian holdings exclude the foreign exchange cover against a note issue, which amounted to SDR 4.3 billion at the end of March 1978.

Mainly U.S. dollars deposited with the European Monetary Cooperation Fund in connection with the issuance of European currency units, U.S. obligations to official institutions in countries not reporting to the Fund, and U.S. obligations that are not classified as foreign exchange reserves in the reports provided to the Fund by the holders.

Part of this residual occurs because some member countries do not classify all the foreign exchange claims that they report to the Fund. Includes identified official claims on the International Bank for Reconstruction and Development, on the International Development Association, and the statistical discrepancy.

In calculating the value of the gold holdings of the EMCF in terms of ECUs, the ECU swap price is equal to the lower of two values: the average of the prices recorded daily at the two London fixings during the previous six calendar months and the average price of the two fixings on the penultimate working day of the period.

The quarterly swaps are arranged at the end of the first week of January, April, July, and October. Changes in the number of ECUs outstanding thus depend on the exchange rates and gold prices on these dates, whereas changes in the SDR value of ECU holdings are calculated at the SDR/ECU exchange rate at the end of each quarter.

Quantity changes in ECU holdings are caused by changes in the amounts of dollars deposited with the EMCF and changes in the ECU prices of the U.S. dollar and gold. In 1984 the negative quantity change for ECUs was caused primarily by a decline in the amounts of dollars deposited with the EMCF, whereas changes in the ECU prices of the U.S. dollar and gold had only a small positive impact. In 1985, however, the sharp fall in the ECU prices of the U.S. dollar and gold led to a sharp drop in the amounts of ECUs created by the EMCF, although the amounts of dollars deposited with this institution increased slightly.

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