- Blog Post
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Far me it from me to disagree with the Economonitor, but isn't the real surprise in today's Bloomberg story is that the UAE still has 98% of its reserves in dollars? And that the UAE is still studying how to shift 10% of its reserves into euros -- something that it announced it inteded to do right after the whole Dubai Ports World saga.
I didn't think anyone (apart from a few small Latin countries) still had 98% of their reserves in dollars. Moving a couple of billion dollars around isn't that hard. The Russians have certainly moved a ton of money from short-term US debt securities (mostly short-term agencies) into the international banking system this year, and in the process likely added to their euro and pound holdings.
In any case the real money in the UAE isn't in its central bank -- the UAE's central bank reserves lag those of places like Algeria and Libya. The various sheikdom who compose the United Emirates tend to keep their money close to home, in the individual sheikdom's oil fund. I doubt ADIA has 98% of its funds in dollars.
Speaking of the Emirates's assets management companies, Dubai Holdings -- is, according to HSBC -- in the running to buy Liverpool FC. What oil magnate doesn't want to watch their team play while in the UK checking up on the house hedge fund?
In a pinch, maybe the US could sell off one of its foreign assets (Man U) to the Saudis to help finance its current account deficit. I don't think that would require a CFIUS review.
On a more serious note, neither the UAE's central bank nor the Swiss National Bank -- which recently joined the Bank of Russia in betting on the yen have a very large reserve portfolio. The available data suggests that central banks upped the portion of their reserves going into dollars in the first half of the year -- at least relative to 2005. So far, the evidence suggests that central banks have not been destabilizing sellers, but rather the buyer of last resort -- Stephen Jen has been right on this.
But there does seem to be a bit more noise than usual. The recent rumors of a Saudi revaluation hint at some of the difficulties created by the Gulf's tight dollar peg, as does rising inflation in some other Gulf states. Russia certainly moved most of its reserves offshore and almost certainly has shifted its reserves toward euros, pounds and yen. There are hints of a growing internal debate inside China on the best way to manage a trillion dollars.
But I have grown jaded -- the most likely outcome is is a bit of debate and very little real movement. The Emirates do not seem to have gotten around to even shifting 10% of its reserves into euro yet. Still given the sums controlled by SAMA and the Bank of Russia -- let alone ADIA and the PBoC -- the possibility that they really have grown sufficiently tired of adding to their dollar portfolios to seriously consider a real policy shift is always worth considering.