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The world’s central banks are stashing away Canadian dollars at a faster rate than any other major currency, a vote of confidence at a time when the loonie has lost some of its shine in foreign-exchange markets.
Official holdings of Canadian dollars surged 23.6 percent to $112.5 billion US in the third quarter from the fourth quarter of 2012, according to new International Monetary Fund data released Monday.
The nine-month period marked the Canadian dollar’s debut on the IMF’s list of currencies held as foreign-exchange reserves by the countries that participate in its voluntary quarterly surveys. The Australian dollar also got its own line in the report, recognition that the Canadian and Australian currencies had become popular choices of central banks seeking to diversify their holdings away from the U.S. dollar and euros.
Of the two relative newcomers to the IMF’s official tally, the Canadian dollar is proving the more popular choice among reserve managers. The value of Australian dollars gained 14.1 percent through the third quarter to $102.3 billion US.
Holdings of Canadian dollars increased 2.4 percent from the second quarter, while Australian dollars rose only 0.6 percent. The value of all allocated reserves climbed 1.9 percent from the second quarter to $6.2 trillion US.
Canada’s growing status as a reserve currency could partially offset the loonie’s fall from grace among traders.
The Canadian dollar, which jumped to parity with its U.S. counterpart in the aftermath of the financial crisis, has sunk to about 94 cents US this year as commodity prices slumped and Canada’s economic growth faltered. Analysts at Bank of Nova Scotia foresee more of the same, predicting the loonie will struggle to regain altitude over the next two years.
To be sure, the Canadian and Australian dollars continue to make up relatively small portions of central bank portfolios. Canada’s currency represents about 1.9 percent of all allocated reserves, and Australia’s represents about 1.7 percent.
That’s better than the Swiss franc, a traditional reserve asset that now makes up only about 0.3 percent of official holdings. But the U.S. dollar continues to reign supreme. Central banks held $6.19 trillion US of the world’s unofficial unit of exchange in the third quarter, a 1.3 percent increase from the second quarter and 61.4 percent of all allocated reserves.
The second-most-popular reserve currency is the euro, which represented less than a quarter of allocated holdings in the third quarter.
Canada’s and Australia’s emergence as reserve assets has come at the expense of the British pound sterling and the Japanese yen, both of which declined over the nine months through the end of the third quarter. The pound and yen posted comebacks in the third quarter, however, gaining 4.7 percent and 1.2 percent respectively.