- International Monetary Fund
- Published Date:
- January 1990
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 off Official Reserve Assets
In 1989, total international reserves measured in terms of the SDR increased by more than 5 percent, to SDR 874 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.
|Total reserves excluding gold|
|Reserve positions in the Fund||41.6||38.7||35.3||31.5||28.3||25.5||25.2|
|Subtotal, Fund-related assets||58.0||56.9||54.8||51.7||48.4||46.0||45.6|
|Total reserves excluding gold||407.0||405.2||418.6||506.6||541.6||588.1||590.7|
|Quantity (in millions of ounces)||946.8||949.4||949.1||944.5||944.9||938.9||938.2|
|Value at London market price||297.8||282.6||303.3||322.3||288.1||286.5||265.6|
|Total reserves excluding gold|
|Reserve positions in the Fund||27.4||25.3||23.1||20.5||19.6||19.6||19.7|
|Subtotal, Fund-related assets||40.7||40.2||39.2||36.9||37.1||37.2||37.3|
|Total reserves excluding gold||226.0||229.4||251.3||324.3||353.1||382.1||383.3|
|Quantity (in millions of ounces)||810.4||810.8||809.1||804.8||801.1||797.9||797.1|
|Value at London market price||254.9||241.4||258.6||274.6||244.2||243.5||225.6|
|Total reserves excluding gold|
|Reserve positions in the Fund||14.2||13.4||12.3||11.0||8.7||5.9||5.5|
|Subtotal, Fund-related assets||17.3||16.7||15.6||14.7||11.3||8.7||8.3|
|Total reserves excluding gold||181.0||175.8||167.3||182.3||188.6||206.1||207.5|
|Quantity (in millions of ounces)||136.4||138.5||140.0||139.7||143.8||141.0||141.1|
|Value at London market price||42.9||41.2||44.7||47.7||43.8||43.0||39.9|
|Total reserves excluding gold|
|Reserve positions in the Fund||2.7||2.5||2.3||2.1||1.5||1.6||1.6|
|Subtotal, Fund-related assets||4.6||4.6||4.6||4.6||3.1||3.2||3.3|
|Total reserves excluding gold||121.3||111.5||94.7||94.0||103.2||120.8||126.5|
|Quantity (in millions of ounces)||112.9||114.7||115.7||113.4||111.7||108.9||108.9|
|Value at London market price||35.5||34.1||37.0||38.7||34.0||33.2||30.8|
|Countries with debt-servicing problems|
|Total reserves excluding gold|
|Reserve positions in the Fund||1.0||0.8||0.8||0.6||0.1||0.1||0.1|
|Subtotal, Fund-related assets||1.6||1.5||1.5||1.8||0.6||0.7||0.6|
|Total reserves excluding gold||51.7||47.3||37.3||36.7||33.9||38.7||38.3|
|Quantity (in millions of ounces)||54.0||54.1||54.1||54.1||52.2||50.2||50.8|
|Value at London market price||17.0||16.1||17.3||18.5||15.9||15.3||14.4|
“Non-gold reserves increased by 9 percent in 1989 to SDR 588 billion at the end of the year. This expansion of non-gold reserves followed a sharp increase in such holdings during 1987 and 1988. The growth of non-gold reserves in 1989 mainly reflected developments in the industrial countries, which expanded their holdings of non-gold reserves at an annual rate of more than 8 percent. All groups of developing countries also increased their non-gold reserves during 1989. While the non-gold reserves of capital importing developing countries without debt-servicing problems increased by 16 percent, the holdings by those developing countries that have experienced recent debt-servicing problems rose by more than 14 percent.
Foreign Exchange Reserves
Foreign exchange reserves increased by 10 percent in 1989 to reach SDR 542 billion by the end of the year. This growth of foreign exchange reserves in 1989 followed sharp increases in 1987 and 1988. While total holdings of foreign exchange reserves grew by SDR 49 billion, the expansion of the holdings of the industrial countries accounted for a substantial part of this increase as their holdings rose by SDR 29 billion, which represented an annual rate of growth of 9 percent. Developing countries also increased their holdings of foreign exchange reserves by 11 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 most of this accumulation, and the foreign exchange reserves of those capital importing countries that have experienced debt-servicing problems are still below their 1985 level.
Holdings of Fund-Related Reserve Assets
Holdings of Fund-related assets decreased by 5 percent in 1989 to reach SDR 46 billion at the end of the year, reflecting an SDR 2 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 16 billion in the period 1984-89. Member’s holdings of SDRs remained unchanged in 1989.
The market value of the global stock of gold reserves declined by 1 percent in 1989, to SDR 287 billion. This decrease reflected a small decline in the physical stock of official gold reserves. This stock 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 85 percent and developing countries 15 percent of the total physical stock of gold reserves of 939 million ounces at the end of 1989.
Developments in First Quarter of 1990
Total international reserves fell by over SDR 18 billion during the first quarter of 1990 as an increase in non-gold reserves was more than 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 1 billion) and developing countries (by SDR 2 billion).
The market value of official holdings of gold decreased from SDR 287 billion at the end of 1989 to SDR 266 billion at the end of the first quarter of 1990. The reduction in the market value of gold was due to a decrease in the market price of gold, falling to SDR 283 an ounce at the end of the quarter, as well as a small decrease 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 dollar between 1977 and 1980 was accompanied by a decline in the share of the 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 that occurred 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 60 percent at the end of 1989. 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 14 percent at the end of 1987 to 19 percent at the end of 1989).
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 the trend in the currency composition of foreign exchange reserves is similar if ECUs, which were introduced in 1979 and accounted for 9 percent of total identified official holdings of foreign exchange at the end of 1989, 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 52 percent at the end of 1989 (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 1989, total identified foreign exchange reserves increased by SDR 42 billion as a result of a sharp positive quantity change of SDR 32 billion and a valuation gain of SDR 10 billion.
|Change in holdings||24,498||−19,185||2,771||38,492||17,532||11,213|
|Change in holdings||2,166||203||−1,389||1,177||2,582||1,050|
|Change in holdings||7,423||7,007||−2,084||9,603||11,105||24,215|
|Change in holdings||138||410||−324||578||1,217||1,816|
|Change in holdings||−125||829||−953||1,097||762||6|
|Change in holdings||84||734||401||1,249||−113||514|
|Change in holdings||4,470||6,502||−686||4,329||3,572||4,736|
|European currency unit|
|Change in holdings||−3,959||−297||2,721||13,828||−3,035||−1,666|
|Total identified holdings2|
|Change in holdings||34,695||−3,798||458||70,352||33,623||41,884|
|Total official holdinas3|
|Change in holdings||40,644||−648||15,473||91,175||38,225||48,968|
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 2 billion fall in holdings of ECUs that occurred in 1989 resulted from a negative quantity change (SDR 4 billion) and a positive valuation effect (SDR 2 billion).
There are significant differences in the pattern of currency diversification between industrial and developing countries (see 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 8 percentage points during this period, whereas the developing countries’ share rose by 4 percentage points. Since 1986, more-over, the share of the dollar in the total reserve holdings by developing countries has fallen by 1 percentage point, compared with a decrease of 10 points for industrial countries. In addition, while industrial countries increased the share of the deutsche mark and the Japanese yen in their reserve portfolios by 9 and 4 percentage points, respectively, since 1980, developing countries decreased the share of reserves denominated in deutsche mark by over 4 percentage points and increased the share of the Japanese yen by 2 percentage points.
Placement of Official Holdings of Foreign Exchange
Total official holdings of foreign exchange increased during 1989 by SDR 49 billion (Table I.4). This sharp increase reflected a modest increase in dollar claims on residents of the United States (SDR 1 billion) and an SDR 32 billion increase in the claims on residents of other countries denominated in the debtor’s own currency. This reflects the continuing diversification of the currency composition of reserve portfolios noted earlier.
|Liabilities of residents of the|
|United States to foreign|
|Items not included in reported|
|official U.S. dollar holdings2|
|Reported official U.S. dollar|
|claims on residents of the|
|Reported official claims on|
|residents of other countries|
|denominated in the debtor’s|
|Identified official holdings|
|Total official holdings|
|of foreign exchange||285||308||349||348||364||455||493||542|
Official holdings of Eurocurrencies increased by SDR 6 billion in 1989, 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 by the end of 1989.
In 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
The 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.