Interpreting Unallocated Foreign Exchange Reserves in COFER

Summary

The document asks how to interpret changes in the IMF’s COFER measure of unallocated foreign exchange reserves. It describes a notable decline in the unallocated share between two quarters in 2015, while reported allocations to major currencies increased, and asks whether this reflected economic fundamentals or accounting conventions. The central distinction is that unallocated reserves are not simply currency holdings of issuing countries; they represent the gap between a broader IFS total and the allocated reserves reported to COFER.

The post also raises a possible reporting-coverage explanation: China had begun reporting a representative portfolio on a partial basis and planned to expand coverage. That could affect the allocated and unallocated totals, but the document does not establish whether it caused the observed change. It is an open question rather than a resolved analysis, and it supplies no data comparison or causal evidence beyond the cited definitions and timing.

Key ideas

• COFER unallocated reserves are defined as the difference between a broader IFS reserve total and allocated COFER reserves.
• A change in the unallocated share may reflect reporting coverage or classification rather than changes in underlying reserve holdings.
• The document raises China’s gradual expansion of reported portfolio coverage as a possible explanation for the 2015 movement.
• It does not determine the cause of the observed change or establish a link to economic fundamentals.

Tags

# Are COFER unallocated resource changes meaningful?


# Are COFER unallocated resource changes meaningful?












I've been looking at the currency reserves (COFER) data on the IMF site:

http://data.imf.org/?sk=E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A4&ss=1408202647052

What caught my eye was the 5% drop in Unallocated Reserves between 2015 Q1 and Q2, from 46.99% to 41.83%. (Previously, since at least 2008, the trend has been a gradual climb upwards.) The claims in all major currencies went up; GBP in particular. I've been trying to understand why, and if this has any relation to economy fundamentals, or if it is just accounting noise?

The "About COFER" page tells me "FX reserves do not include holdings of currency by the issuing country". So that burst the bubble of my first guess of what "unallocated reserves" meant. It goes on to say: "Unallocated Reserves is the difference between the total FX reserves in the IFS (world table on foreign exchange) and the total allocated reserves in COFER. It includes FX holdings of those places that report to IFS but not to COFER."

Can anyone explain what that means? (BTW, I've not been able to find the IFS table they are referring to, yet.)

A footnote to the COFER reporters page says "China has reported a representative portfolio on a partial basis, and will gradually increase the reported portfolio to full coverage of FX reserve assets within a period of around two to three years." (I have to assume they mean 2-3 years from 2015.) Could the jump in allocated reserves be due to that?

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.