On Wednesday, the IMF released the latest Currency Composition of Official Foreign Exchange Reserves (COFER) report for Q2 2020. It showed that while the Dollar share of global reserves had increased in Q1 2020, likely on a combination of valuation effects and safe-haven demand, trend reversed abruptly in Q2 as shown in the Goldman chart below.
The contraction in dollar reserves is hardly new: prior to the Covid-19 pandemic, the Dollar share of allocated reserves had been trending lower over the past two years (chart below, left), but that trend was interrupted in Q1 2020. However, the market recovery in Q2 helped to reverse most of the increase in the Dollar’s share from earlier this year. At the same time, the share of Euro reserves rebounded somewhat in Q2.
In a macroeconomics-driven world, economic fallacies abound. They are periodically trashed when disproved, only to arise again as received wisdom for a new generation of macroeconomists determined to justify their statist beliefs.