Colombia Dumps Euros and Yen Reserves for 99% Anglophone Debt

Colombia joined Brazil in cutting its international reserves in the crisis-hit euro area in favor of higher-yielding debt in Canada and Australia.

The Andean nation now holds 99 percent of its $39 billion in international reserves in the currencies of English-speaking nations, after selling its euro and yen assets and buying Australian, Canadian and New Zealand dollars, as well as sterling, the central bank said today in a report published on its website.

It is currently “very difficult” to find attractive yields on euro assets that are rated AAA, central bank co- director Juan Pablo Zarate said today in a phone interview. “If interest rates go up again and Germany has positive yields, we’ll probably go back to investing in German debt.”

Colombia has boosted its international reserves by 17 percent over the last year, as the central bank stepped up dollar purchases to try to curb a rally in the peso. Fitch Ratings cited the nation’s rising reserve levels when it increased its outlook on its BBB- rating on Colombia’s foreign debt to positive from stable last week.

Colombia also wants to hold reserve currencies that move in correlation with those of its trading partners, Zarate said.

“Our aim is to replicate the foreign exchange composition of the import side of the balance of payments,” Zarate said.

Colombia held 87.7 percent of its reserves in U.S. dollars on Dec. 31, up from 85.6 percent two years earlier. The country held 5 percent of its reserves in Canadian dollars, 3.8 percent in Australian dollars, 1.9 percent in sterling, and 1 percent in New Zealand dollars, the central bank said. The country also held 0.9 percent in Swedish krona and 0.3 percent in other currencies.

On Dec. 31 2010, Colombia held 11.3 of its reserves in euros, 2.8 percent in yen and 0.3 percent in other currencies

The Brazilian central bank has also cut its Euro holdings in recent years while increasing its holdings of Australian and Canadian dollars in recent years, citing these countries’ “solid fundamentals” and “comfortable” fiscal positions. Brazil held 4.9 percent of its reserves in euros at the end of 2011, from 9.4 percent in 2008.

To contact the reporter on this story: Matthew Bristow in Bogota at mbristow5@bloomberg.net

To contact the editor responsible for this story: Philip Sanders at psanders@bloomberg.net

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