Chapter

APPENDIX I: International Reserves

Author(s):
International Monetary Fund
Published Date:
January 1989
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This appendix reviews recent developments in international reserves and liquidity as represented by: (1) the evolution of holdings of official reserve assets; (2) the currency composition and distribution of foreign exchange reserves; and (3) the placement of official holdings of foreign exchange reserves.

Recent Evolution of Official Reserve Assets

In 1988, total international reserves measured in terms of the SDR increased by less than 1 percent, to SDR 830 billion, reflecting an increase in the holdings of non-gold reserves partially offset by a fall in the market value of official holdings of gold (Table I.1). The growth of non-gold reserves reflected larger holdings of foreign exchange reserves by both industrial and developing countries that more than offset a decline in the holdings of Fund-related assets by developing countries.

Table I.1Official Holdings of Reserve Assets, End of Year 1983–88 and End of March 19891(In billions of SDRs)
198319841985198619871988March

1989
All countries
Total reserves excluding gold
Fund-related assets
Reserve positions in the Fund39.141.638.735.331.528.327.2
SDRs14.416.518.219.520.220.219.8
Subtotal, Fund-related assets53.558.056.954.851.748.447.1
Foreign exchange308.3348.9348.3363.8455.0493.2514.7
Total reserves excluding gold361.8407.0405.2418.6506.6541.6561.8
Gold2
Quantity (millions of ounces)947.8946.8949.4949.1944.5945.2943.3
Value at London market price345.4297.8282.6303.3322.3288.2279.6
Industrial countries
Total reserves excluding gold
Fund-related assets
Reserve positions in the Fund25.627.225.223.020.419.518.9
SDRs11.513.414.916.116.417.617.0
Subtotal, Fund-related assets37.140.640.139.136.837.036.0
Foreign exchange167.9183.9187.3209.8283.3309.5319.0
Total reserves excluding gold205.0224.5227.4248.9320.1346.6354.9
Gold2
Quantity (millions of ounces)786.6786.086.5785.7781.4781.7779.6
Value at London market price286.6247.2234.1251.1266.6238.3231.1
Developing countries
Total reserves excluding gold
Fund-related assets
Reserve positions in the Fund13.614.313.512.411.18.88.3
SDRs2.93.13.33.43.82.62.8
Subtotal, Fund-related assets16.517.416.915.814.911.411.1
Foreign exchange140.4165.0161.0154.0171.7183.6195.7
Total reserves excluding gold156.9182.5177.8169.7186.6195.0206.8
Gold2
Quantity (millions of ounces)161.2160.8162.9163.5163.1163.6163.7
Value at London market price58.750.648.552.255.749.948.5
Net debtor developing countries
Total reserves excluding gold
Fund-related assets
Reserve positions in the Fund3.42.82.62.42.21.61.6
SDRs1.81.92.12.32.61.61.6
Subtotal, Fund-related assets5.24.74.74.84.83.23.2
Foreign exchange94.9118.1108.892.493.5106.5115.4
Total reserves excluding gold100.1122.8113.597.198.3109.7118.6
Gold2
Quantity (millions of ounces)138.3137.3139.0139.2136.8131.4131.6
Value at London market price50.443.241.444.546.740.139.0
Net debtor developing countries with debt-servicing problems
Total reserves excluding gold
Fund-related assets
Reserve positions in the Fund1.31.00.80.80.60.10.1
SDRs0.60.60.70.71.30.50.6
Subtotal, Fund-related assets1.81.61.51.51.80.60.7
Foreign exchange34.250.145.735.834.833.234.1
Total reserves excluding gold36.151.747.337.436.733.934.8
Gold2
Quantity (millions of ounces)53.054.054.154.154.152.252.7
Value at London market price19.317.016.117.318.515.915.6
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.

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.

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.

Non-Gold Reserves

Non-gold reserves increased by 7 percent in 1988 to SDR 542 billion at the end of the year. This increase in non-gold reserves followed a sharp increase in such holdings during 1987 and a moderate expansion during 1986. The growth of non-gold reserves in 1988 mainly reflected developments in the industrial countries, which expanded their holdings of non-gold reserves at an annual rate of more than 8 percent. Developing countries as a whole also increased their non-gold reserves during 1988, but the experiences of the various subgroups of developing countries were not uniform. In particular, while the non-gold reserves of capital importing developing countries without debt-servicing problems increased by 12 percent, the holdings by those developing countries that have experienced recent debt-servicing problems declined by more than 7 percent.

Foreign Exchange Reserves

Foreign exchange reserves increased by 8½ percent in 1988 to reach SDR 493 billion by the end of the year. This moderate growth of foreign exchange reserves in 1988 followed a sharp increase in 1987 and a small expansion in 1986 (4 percent increase).

While total holdings of foreign exchange reserves grew by SDR 38 billion, the expansion of the holdings of the industrial countries accounted for a substantial part of this increase as their holdings rose by SDR 26 billion, which represented an annual rate of growth of 9 percent. Developing countries increased their holdings of foreign exchange reserves by 7 percent. This increase continued the process of accumulation of foreign exchange reserves by developing countries initiated in 1987 after successive declines in 1985 and 1986. However, the capital importing developing countries without debt problems accounted for almost all of this accumulation, and the foreign exchange reserves of those capital importing countries that have experienced debt-servicing problems fell by 4½ percent.

Holdings of Fund-Related Reserve Assets

Holdings of Fund-related assets decreased by 6 percent in 1988 to reach SDR 48 billion at the end of the year, reflecting an SDR 3 billion decline in holdings of reserve positions in the Fund. Reserve positions in the Fund, which comprise the reserve tranche position and the creditor position, had increased by SDR 16 billion between the end of 1982 and the end of 1984, but then declined by SDR 10 billion in the period 1984–87. Members’ holdings of SDRs remained unchanged in 1988, following a slight increase in 1987 (SDR 0.7 billion). Except for 1983, holdings of SDRs as reserve assets have increased during the 1980s.

Gold

The market value of the global stock of gold reserves declined by 10½ percent in 1988, to SDR 288 billion. This decrease reflected a lower market price for gold, which fell from SDR 341 an ounce at the end of 1987 to SDR 305 an ounce at the end of 1988. The physical stock of gold reserves has remained fairly constant since 1972, except for 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 changed very little during the 1980s. Industrial countries held 83 percent and developing countries 17 percent of the total physical stock of gold reserves of 945 million ounces at the end of 1988.

Developments in First Quarter of 1989

Total international reserves increased by over SDR 11 billion during the first quarter of 1989 as an increase in non-gold reserves was partly offset by a decrease in the market value of official holdings of gold. The larger holdings of non-gold reserves reflected a rise in the foreign exchange reserves of both industrial countries (by SDR 10 billion) and developing countries (by SDR 12 billion).

The market value of official holdings of gold decreased from SDR 288 billion at the end of 1988 to SDR 280 billion at the end of the first quarter of 1989. The reduction in the market value of gold was due to a decrease in the market price of gold, falling to SDR 296 an ounce at the end of the quarter, which more than offset a moderate increase in total physical holdings of gold.

Currency Composition of Reserves

Since the mid-1970s, there has been a continuing diversification of the currency composition of foreign exchange reserves. Whereas that composition had remained relatively stable during 1975–77, the sharp depreciation of the U.S. dollar between 1977 and 1980 was accompanied by a decline in the share of the U.S. dollar in total foreign exchange reserves, from 79 percent at the end of 1977 to 69 percent at the end of 1980. This diversification away from the dollar was partly reversed in the early 1980s, when the dollar appreciated strongly relative to the other major currencies. As a result, the share of the dollar in reserves rose to 71 percent by the end of 1983 (Table I.2). But by 1985, the share had declined by 7 percentage points as monetary authorities again diversified the currency composition of their foreign exchange reserves, and the proportion of foreign exchange reserves denominated in the deutsche mark, the Japanese yen, and, to a lesser extent, sterling increased. The extensive foreign exchange market intervention by some major industrial countries during 1986 and 1987 was accompanied by a rise in the proportion of reserves held as dollar-denominated assets (to 67 percent in 1987) and, as a counterpart, the shares of the deutsche mark, the Japanese yen, and sterling declined slightly. However, the share of reserves held as dollar-denominated assets fell to 63 percent at the end of 1988. The counterpart of the fall in the share of the dollar was a sharp increase in the share of the deutsche mark (which increased from 15 percent at the end of 1987 to 16 percent at the end of 1988).

Table I.2Share of National Currencies in Total Identified Official Holdings of Foreign Exchange, End of Year 1980–881(In percent)
Memorandum:

ECUs Treated

Separately 2
1980198119821983198419851986198719881988
All countries
U.S. dollar68.671.570.571.269.464.266.066.863.354.5
Pound sterling2.92.12.42.63.03.12.82.73.12.9
Deutsche mark14.912.812.311.612.314.914.914.716.215.1
French franc1.71.31.21.01.01.31.21.21.71.6
Swiss franc3.22.72.82.42.12.31.91.61.51.4
Netherlands guilder1.31.11.10.80.81.01.11.21.11.0
Japanese yen4.34.04.74.95.67.87.67.17.26.7
Unspecified currencies33.14.45.05.55.85.44.44.76.017.0
Industrial countries
U.S. dollar77.678.777.177.473.665.468.470.767.454.9
Pound sterling0.70.70.80.81.62.11.61.41.91.7
Deutsche mark14.312.812.212.814.819.417.516.518.316.5
French franc0.50.40.30.30.40.50.60.81.61.4
Swiss franc1.71.71.71.41.41.81.41.01.00.9
Netherlands guilder0.70.80.70.50.61.01.11.11.11.0
Japanese yen3.33.74.45.16.38.88.26.66.45.8
Unspecified currencies31.21.22.81.71.21.11.21.82.317.7
Developing countries4
U.S. dollar59.864.163.864.864.962.862.158.253.953.0
Pound sterling5.03.54.14.44.44.44.65.35.75.6
Deutsche mark15.512.812.410.39.79.810.811.111.911.7
French franc2.92.22.11.81.72.12.22.01.91.9
Swiss franc4.73.83.83.42.82.92.82.92.62.5
Netherlands guilder1.91.41.61.20.91.01.21.21.01.0
Japanese yen5.34.44.94.75.06.76.88.39.08.8
Unspecified currencies34.97.77.39.510.610.39.511.014.115.5

Starting with 1980, the SDR value of ECUs issued against dollars is added to the SDR value of dollars, but the SDR value of ECUs issued against gold is excluded from the total distributed here. 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 1980 as is explained in the preceding footnote. The share of ECUs in total foreign exchange holdings was 10.2 percent for all countries and 15.6 percent for the industrial countries in 1988.

The 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.

Starting with 1980, the SDR value of ECUs issued against dollars is added to the SDR value of dollars, but the SDR value of ECUs issued against gold is excluded from the total distributed here. 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 1980 as is explained in the preceding footnote. The share of ECUs in total foreign exchange holdings was 10.2 percent for all countries and 15.6 percent for the industrial countries in 1988.

The 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 dollars is counted as part of the holdings of dollars. The overall picture of changes in trend in the currency composition of foreign exchange reserves is similar if ECUs—which were introduced in 1979 and accounted for 10 percent of total identified official holdings of foreign exchange at the end of 1988—are treated separately. In particular, the share of the dollar (excluding holdings of ECUs) in total identified reserve holdings fell from 57 percent at the end of 1987 to 54½ percent at the end of 1988 (see Table I.2).

Changes in the SDR value of foreign exchange reserves can also be decomposed into valuation (or price) and quantity changes for each of the major currencies (including the ECU) and for the total of the identified foreign exchange reserves (Table I.3). In 1988, total identified foreign exchange reserves increased by over SDR 33 billion as a result of a sharp, positive quantity change of SDR 28 billion and a moderate valuation gain of over SDR 5 billion.

Table I.3Currency Composition of Official Holdings of Foreign Exchange, End of Year 1983–881(In millions of SDRs)
198319841985198619871988
U.S. dollar
Change in holdings13,11422,776−19,2101,77740,09315,953
Quantity change4,27110,5492,64420,68572,0713,673
Price change8,84212,227−21,854−18,907−31,97712,280
Year-end value178,805201,580182,370184,148224,241240,194
Pound sterling
Change in holdings8182,271283−1,0971,5532,841
Quantity change1,1673,636−678−3447392,634
Price change−349−1,364961−753814207
Year-end change6,8389,1109,3928,2969,84912,690
Deutsche mark
Change in holdings−1066,9357,301−4399,82312,533
Quantity change2,3549,8161,805−6,2896,88716,400
Price change−2,459−2,8815,4965,8502,936−3,867
Year-end value30,59337,52944,83044,39154,21466,746
French franc
Change in holdings−378483585−1697912,543
Quantity change70700138−3556302,965
Price change−448−217447185161−423
Year-end value2,6903,1733,7573,5884,3796,922
Swiss franc
Change in holdings−533−39637−1,174197288
Quantity change−295628−57−2,085−344912
Price change−237−667695911541−624
Year-end value6,3406,3016,9395,7655,9626,250
Netherlands guilder
Change in holdings−61421465928599579
Quantity change−370411313−123750373
Price change−244−197346408245−294
Year-end value2,1522,3663,0253,3104,3054,384
Japanese yen
Change in holdings1,2874,2726,186−6273,4013,351
Quantity change5044,4774,006−3,6359012,379
Price change783−2052,1813,0082,500972
Year-end value12,94017,21223,39922,77226,17229,523
ECU
Change in holdings4,074−3,959−2972,72113,848−3,919
Quantity change8,441−429−4,551−30611,483−1,254
Price change−4,366−3,5304,2543,0272,365−2,665
Year-end value41,99938,04037,74240,46454,31250,393
Total identified holdings2
Change in holdings17,66232,953−3,8561,27870,70233,669
Quantity change16,14129,7883,6197,54993,11628,082
Price change1,5213,165−7,476−6,271−22,4145,587
Year-end change282,357315,311311,454312,733383,435417,103
Total official holdings3
Change in holdings23,27540,635−64715,48691,18438,190
Year-end value308,304348,939348,292363,778454,962493,153

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.

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.

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 dollar holdings of these institutions. These swaps are renewed every three months, and changes in the members’ holdings of dollars and gold, as well as changes in the market price of gold and the foreign exchange value of the dollar, affect the amount of ECUs outstanding.1 Quantity changes in ECU holdings depend, therefore, on the evolution of its two components, gold and dollars.2 The SDR 4 billion fall in holdings of ECUs that occurred in 1988 resulted from both a negative quantity change (SDR 1 billion) and a negative valuation effect (SDR 3 billion).

There are significant differences in the pattern of currency diversification between industrial and developing countries (Table I.2). During 1980–86 the industrial countries experienced greater diversification of reserve holdings than the developing countries. The industrial countries’ share of dollar-denominated reserves decreased by 15 percentage points during this period, whereas the developing countries’ share remained relatively stable. Since 1986, moreover, the share of the dollar in the total reserve holdings of developing countries has fallen by 8 percentage points, compared with a decrease of 1 point for industrial countries. In addition, while industrial countries increased the share of the deutsche mark and the Japanese yen in their reserve portfolios by 5 and 4 percentage points, respectively, since 1980, developing countries decreased the share of reserves denominated in deutsche mark by over 2 percentage points and increased the share of sterling and the Japanese yen by 3 and 4 percentage points, respectively.

Placement of Official Holdings of Foreign Exchange

Total official holdings of foreign exchange increased during 1988 by SDR 38 billion (Table I.4). This sharp increase reflected a substantial increase in dollar claims on residents of the United States (SDR 37 billion) and an SDR 9 billion increase in the claims on residents of other countries denominated in the debtor’s own currency.

Table I.4Placement of Official Holdings of Foreign Exchange Reserves, End of Year 1981–881(In billions of SDRs)
19811982198319841985198619871988
Liabilities of residents of the United States to foreign official institutions139149163178159172183222
Items not included in reported official U.S. dollar holdings2−36−50−52−46−41−34−33−35
Reported official U.S. dollar claims on residents of the United States10399111132118138150187
Reported official claims on residents of other countries denominated in the debtor’s own currency3938404656617988
Subtotal142137151178174199229275
Identified official holdings of Eurocurrencies
Eurodollars5856576660546057
Other currencies3230333841354855
Subtotal90869010410189108112
ECUs4338423838405450
Residual31925252935366456
Total official holdings of foreign exchange293285308349348364455493
Sources: International Monetary Fund, International Financial Statistics; U.S. Treasury Department, Bulletin; Bank of England, Quarterly Bulletin; BIS, International Banking and Financial Market Developments.

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

Mainly dollars deposited with the European Monetary Cooperation Fund in connection with the issuance of ECUs, 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; Bank of England, Quarterly Bulletin; BIS, International Banking and Financial Market Developments.

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

Mainly dollars deposited with the European Monetary Cooperation Fund in connection with the issuance of ECUs, 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.

Official holdings of Eurocurrencies increased by SDR 4 billion in 1988, but their share in total official holdings of foreign exchange continued to decrease. The share of ECUs in total official holdings of foreign exchange fell sharply by the end of 1988.

1In calculating the value of the gold holdings of the EMCF in terms of ECUs, the ECU swap price is set 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 at the two fixings on the penultimate working day of the period.
2The quarterly swaps are arranged at the end of the first weeks 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.

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