Stampede Out of the Dollar? Not Quite
With all the bearishness on the dollar out there, you would think investors would be racing for the exits. Um, not just yet.
New data from the IMF on foreign exchange reserves shows that almost all developing countries' new allocated reserves went into the dollar in the first quarter of this year.
The share of "other currencies" — currencies other than the euro, dollar, Swiss franc, Japanese yen, or British pound — rose, at it has for several quarters. But overall, "After taking out price effects, in the first quarter almost all of new allocated developing country reserves went into the dollar and these countries appear to have sold euros," wrote Jeffrey Young, head of North American FX research at Barclays Capital, in a research note.
"Mild diversification is likely to proceed, but shifts between the main currencies, the dollar and the euro, are likely to be made cautiously, with an eye toward market movements."
Take a look here:
Apparently, QE2 didn't faze this group of central bankers. They may even have been buying dollars to "slow the general decline of the dollar," Young wrote.
Eventually, Young expects dollars to account for a smaller share of developing countries' reserves. But, at least for now, rumors of the imminent demise of the dollar as a reserve currency seem to have been greatly exaggerated.
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