Euro Reserves Vanishing on Draghi, Standard Chartered Says

  • IMF data don't reflect full extent of euro selloff: Pihlman
  • `We have seen central banks reducing their euro holdings'

Some of the world’s central banks have cut or completely sold off their euro holdings in anticipation of losses tied to unprecedented stimulus, according to Standard Chartered Plc.

International Monetary Fund data show the euro’s share of worldwide reserves has dropped since last year, reflecting the currency’s decline, said Jukka Pihlman, Singapore-based head of coverage for central banks and sovereign wealth funds for Standard Chartered. The IMF figures don’t provide a complete picture as the reduction in euro holdings has been “more pronounced” among countries that don’t report details of the currency composition of their reserves to the organization, he said, without naming any.

The euro has depreciated 23 percent against the dollar since the end of 2013, on course for its biggest two-year decline. European Central Bank President Mario Draghi signaled in October that policy makers are open to boosting stimulus when they meet Thursday, after embarking on a 1.1 trillion euros ($1.2 trillion) asset-purchase program in March.

“Anecdotally, we have seen central banks reducing their euro holdings and, in some cases, very significantly,” Pihlman, who formerly worked for the IMF, said in an interview Wednesday. “The negative interest rates in euro have certainly been a factor, but also the sluggish growth and expectation of further depreciation played a role.”

The euro was at $1.0586 at 7:09 a.m. in London, down 5.3 percent this quarter. It reached a 12-year low of $1.0458 on March 16.

Expand Stimulus

All 53 economists surveyed by Bloomberg predicted the ECB will expand currency-weakening stimulus at Thursday’s meeting to help revive the region’s faltering economy. Options include a further cut in the deposit rate from minus 0.2 percent, and an expansion or extension of the ECB’s asset-purchase program.

About one third of euro-area bonds, or $2 trillion of securities, have yields below zero, according to data compiled by Bloomberg.

ABN Amro Bank NV, Bank of America Corp.’s Merrill Lynch unit and Goldman Sachs Group Inc. are among those forecasting the euro will weaken below parity next year for the first time since December 2002.

The euro’s share of worldwide reserves fell to about 21 percent in the second quarter, from 24 percent a year earlier, according to the IMF’s Sept. 30 report on the currency composition of official foreign-exchange reserves, known as Cofer data. The greenback accounted for 64 percent of reserves reported to the IMF in the three months ended June 30, compared with 61 percent a year earlier.

“Adjusting for the FX rates, there the euro’s share hasn’t actually decreased,” Pihlman said.

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