Central bank foreign reserves currency allocations - a shift away from USD

As the dollar continues to get clobbered (chart below), it is helpful to see what central banks are doing with their reserves. This is particularly useful because central banks don't trade currencies (at least they are not supposed to), and the allocations are often indications of longer term policies/trends.



source: Bloomberg


A recent release from IMF shows the following allocation picture as of the end of Q2 (this is on a quarter lag, but still useful):



source: IMF


And here is the Q1 to Q2 change in the amounts allocated to each currency (shown as percent change from the Q1 allocation amounts). Note that the Swiss Frank (already a small allocation) continues to drift down as central banks begin to see Switzerland as too leveraged to it's financial services industry.



source: IMF


Looks like some allocation to the USD continued in Q2, but allocations to EUR, JPY, and other currencies have increased much more. That makes USD a smaller percentage of the overall foreign reserves. In fact the USD percentage has dropped to a record low of just under 63%. And that is looking more like a trend.

source: Bloomberg


If the trend continues, it will become particularly difficult for export focused nations such as Japan and Germany. Given the size of foreign reserves (foreign exchange holdings are now at $6.8 trillion), even small reallocations to EUR and JPY will cause sizeable currency appreciation.