Column: Dollar reserves shock from weather sanctions: Mike Dolan

U.S. dollar banknotes are shown in this illustration taken February 14, 2022. REUTERS/Dado Ruvic/File Photo

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LONDON, July 1 (Reuters) – The weaponization of foreign currency holdings by Western governments that froze Russian assets after Moscow invaded Ukraine does not appear to have scared reserve managers so far. Many may even increase their US dollar holdings.

The latest figures from the International Monetary Fund showed on Thursday that the dollar’s share of the more than $12.5 trillion in global foreign exchange reserves was unchanged at 58.8% in the first quarter – even after the invasion and financial sanctions of reprisals against Moscow at the end of February.

This may mask a marginal 1-2% drop in its actual share when fluctuations in currency values ​​during the quarter are taken into account and the fact that the overall global count fell by about a third of a trillion dollars per year. from last year’s record highs.

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The euro’s share slipped slightly to 20.6% at first glance, but this is also likely due to exchange rate effects.

And any change that could be detected went to the half-dozen other most widely held currencies.

In short, no shock or sudden lurch in reserve management more broadly after the G7 and European Union governments decided to freeze about half of the central bank’s $640 billion in foreign assets. Russia.

While central banks are loath to disrupt sensitive stocks overnight, the lack of any immediate change may surprise those who thought this rare sanction could make other central banks reluctant to let national savings into Western markets by fear of a similar fate in the future. political confrontation. Read more

Not only did the IMF reading show that dollar holdings were relatively unscathed to begin with, but an annual UBS survey of around 30 reserve managers over the past three months showed that many may even end up adding more dollars.


In a series of questions related to their reaction to the Russian freeze, 60% said they expected at least some impact and 10% saw “significant” fallout. More than a quarter expected another major central bank to face sanctions comparable to those imposed on Russia in the next few years.

But nearly two-thirds saw no or limited impact on the role of the dollar in reserves more broadly.

But perhaps most strikingly, given initial concerns, nearly half saw the dollar benefit the most from a shift to a more multipolar world in the wake of recent events.

While 80% saw the Chinese yuan benefit, this is less surprising given that the yuan currently accounts for less than 3% of global reserves.

While nearly 60% said they had taken direct action so far, a net positive response of nearly 10% said they had actually increased their exposure to US Treasuries.

Two-thirds said it would accelerate the adoption of central bank digital currencies.

Taking everything into account going forward – not just Russian sanctions – the only currencies more respondents expected to cut than rise were the Japanese yen and the British pound.

They were as divided as many in the market on whether the whole constellation of recent events meant we had entered a new paradigm for inflation and fixed income.

When asked if they saw a turning point in the 40-year bond bull market, 54% said yes and 46% no. When asked if the current increase in inflation is temporary or permanent, 48% choose temporary and 52% permanent.

If an earthquake is predicted, don’t hold your breath.

“We may see some marginal diversification over a very long period, but the dollar’s dominance will remain,” said Capital Group fixed income director Flavio Carpenzano.

The author is Finance and Markets Editor at Reuters News. All opinions expressed here are his own.

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By Mike Dolan, Twitter: @ReutersMikeD; Editing by Edmund Blair

Our standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias by principles of trust.

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