Wednesday, July 11, 2007
1) FX reserve growth continues at a ridiculous pace. China released its Q2 reserve data today, and Jon Anderson of UBS was right- reserve growth did slow in Q2. Instead of growing $135 billion, as it did in Q1, China's pile of FX reserves grew by a miniscule $130 billion in Q2. The chart below illustrates the reserve growth of China, India, Russia, and Taiwan.
2) The pace of growth really has been parabolic. Consider the rates of change of China, Inida, and especially Russia over the last year. All of these countries are active particpants in diversifying/maintaining portfolio benchmarks for their currency reserves.
It looks like the CBs and investment authorities were hoping to buy euros on the dip, but failed- hence the recent scramble to pay offers at nosebleed levels. Looks like they've been using a ratings agency toolkit of their own!