What is Currency Composition of Official Foreign Exchange Reserves (COFER)?

The Currency Composition of Official Foreign Exchange Reserves (COFER) is a statistical database maintained by the International Monetary Fund (IMF) that tracks the currency composition of countries’ foreign exchange reserves. These reserves are assets held by central banks and monetary authorities in different currencies, used to support the national currency and meet international payment obligations.

Key Aspects of COFER:

1. Composition of Reserves: COFER reports the reserves held in various major currencies, primarily:
   • US Dollar (USD)
   • Euro (EUR)
   • Japanese Yen (JPY)
   • British Pound (GBP)
   • Chinese Renminbi (CNY)
   • Swiss Franc (CHF)
   • Other currencies in aggregate categories like “Other Currencies.”
2. Global Distribution and Trends: COFER data provides insights into the distribution of reserves across these currencies, reflecting central banks’ preferences and global economic dynamics. Historically, the U.S. dollar has maintained the largest share, but recent years have shown a gradual diversification as some countries shift reserves to other currencies, particularly the Euro and, increasingly, the Renminbi.
3. Importance for Stability and Confidence: The currency mix of foreign exchange reserves can indicate a country’s strategy to manage exchange rate risks, ensure liquidity, and prepare for economic shocks. For example, holding reserves in stable and widely accepted currencies like the USD or Euro can offer a safeguard during crises.
4. Economic Insights: By tracking currency shifts in global reserves, COFER data provides clues about global economic and geopolitical trends, including trust in particular economies and shifts towards new or emerging financial centers.

Recent Trends

• Dollar Dominance but Decline: While the USD remains the dominant reserve currency, its share has gradually decreased as some countries diversify to reduce reliance on the dollar.
• Rising Share of the Renminbi: Since the Chinese Renminbi was included in the IMF’s Special Drawing Rights (SDR) basket in 2016, its share in global reserves has slowly increased, signaling China’s growing influence in global finance.
• Increased Use of Non-Traditional Currencies: Some central banks have started allocating a minor portion of their reserves to other emerging market currencies, partly as a hedge against currency concentration risks.