A Foreign Exchange Reserve Mystery: Which Major Advanced Economy Is Not Reporting the Currency Composition of Its Reserves?
The International Monetary Fund (IMF) collects and publishes quarterly data on the currency composition of official foreign exchange reserves, known as COFER. The data are published for three groups: the world, the advanced economies, and the emerging and developing economies. For each group, allocated reserves are broken down into the traditional reserve currencies (US dollar, euro, sterling, yen, Swiss franc) and “other” currencies. When a country does not report its currency composition, or does so incompletely, the reserves are listed as "unallocated."
The graph below depicts archived COFER data from 1999 to 2006 and the most recent COFER data from 2007 to the present. Before 2006 there is a general upward trend in the unallocated reserves for the world and for the developing countries. Advanced economies reported the currency composition of their reserves, so their “unallocated” reserves remained unchanged in this period, at near zero.
Historically, advanced economies have nearly always reported the currency composition of their reserves to the IMF. But in 2007, the share of unallocated reserves for the advanced economies jumped from about zero to more than 10 percent. The question is why that happened.
A clue lies in the fact that before 2007 Hong Kong, Korea, Singapore, and Taiwan (officially a province of China) were not considered advanced countries.1 After 2007, they were moved to the category of advanced economies and were included in the data for that group. Why then was there an increase in advanced economies’ unallocated reserves? Clearly at least one of the four is not reporting the currency composition of its foreign exchange reserves. But which country is not reporting?
Figure 1 COFER non-allocated reserves, by country group (percent)
Source: IMF COFER data.
Having established that Hong Kong, Korea, Singapore, or Taiwan is responsible for the increase in the unallocated reserves of the advanced economies, we can determine the likely non-reporter.
The second graph compares COFER’s unallocated reserves for the advanced economies starting in 2007 with the foreign exchange reserves for each of the four newly designated advanced economies starting in that year. The evidence is clear. Taiwan is not reporting the currency composition of its official foreign exchange reserves to the IMF! For the past six years on average, Taiwan has accounted for 99 percent of the unallocated reserves of the advanced economies.
Figure 2 Foreign exchange reserves (billions of US dollars)
Sources: Bank of China (Taiwan), IMF International Financial Statistics, and IMF COFER data.
It has historically been expected that countries with significant foreign exchange reserves provide these data to the IMF. The question for Taiwan is why it does not follow this practice. After all, it can do so on a confidential basis. One can only speculate on its motivation. China, another major holder of foreign exchange reserves, also does not report the currency composition of its reserves to the IMF. China’s reserves amount to more than 75 percent of the $4.2 trillion in unallocated reserves of emerging and developing countries as of the end of 2011. Taiwan’s actions are a missed opportunity. If the Taiwan government were to report its allocated reserves, this might influence China to follow suit.
1. The historical series was revised back to 1999 to include those reporters, but the chart shows the old series prior to 2007.