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China: On a transparency drive, starts reporting reserve allocation - Nomura

FXStreet (Delhi) – Research Team at Nomura, note that China has become more transparent and has begun reporting to the IMF its breakdown of its foreign currency reserves, indicated in the latest IMF COFER release for Q2 2015.

Key Quotes

“Currently, it reports only a representative portfolio, increasing to full coverage of FX reserves over the next two or three years. This is a step towards convincing the IMF of its transparency for inclusion in the SDR basket.”

“The new data suggest that, relative to other EM central banks, China is underweight EUR, while it may be overweight GBP and possibly AUD in its “representative portfolio”; however, firm conclusions are difficult to draw.”

“The EUR share of allocated reserves fell from 20.8% in Q1 to 20.5% in Q2, despite valuation adjustments that would have seen the EUR share, all else equal, rise to 21.4%. This decline could have stemmed from either 1) the share of Chinese reserves in EUR being lower than for other EMs (dragging the global share down on inclusion), 2) abnormally large EUR selling during the quarter (potentially due to large rebalancing flows).”

“GBP also increased in its share of global reserves, which could imply that China holds a greater share of GBP than other central banks, or active buying of GBP. We think it is probably a combination of the two, as our flow analysis points to decent size bond inflows in Q2 (but probably not enough to account for the entire shift in GBP share).”

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