There has been a modest shift

A December 2006 Bank for International Settlements (BIS) quarterly report revealed that there has been a reduction in dollar holdings by Russia and OPEC.

“Both Russia and OPEC have seen a huge influx of for eign exchange from the recent rise in oil prices,” Buskas says. “Among the OPEC nations, dollar holdings were cut from 67 percent to 65 percent. The two-percent diversification went into euro holdings, which rose to 22 percent from 20 percent. OPEC countries reduced their U.S. dollar deposits in BIS reporting banks by $5.3 billion. Qatar reduced its U.S. dollar deposits by $2.4 billion.”

Sean Callow, senior currency strategist at Westpac Institutional Bank in Singapore, says International Monetary Fund (IMF) data shows “global U.S. dollar reserves have fallen from around 72-73 percent in 1999 to 69 percent in the third quarter of 2006.”

In other words, diversification out of the dollar has been moderate.

“Many central banks have said they would look into it, but few have actually done it,” says Brian Fabbri, chief economist at BNP Paribas. “Russia is the only one that is actually in the process of doing this.”

In October 2006, Russian central banks announced intentions to diversify into the Japanese yen, which comes on the wake of a shift down from dollar assets into the euro. Russian reserves used to be in the neighborhood of 80 percent dollars, 20 percent euros, but that has changed to roughly 55 percent dollars, 45 percent euros. Analysts would not be surprised if a 50-50 split eventually occurs. The move by the Russians, however, is in large part, patterned after their trading activity, which is concentrated in Eurozone countries.

South Korea, one of the world’s top-five reserve holders, announced in early February 2007 that it was considering diversifying part of its growing reserves away from U.S. Treasury securities into overseas blue-chip stocks in an attempt to increase returns.

The United Arab Emirates, Qatar, and Syria are the other countries who have announced intentions to diversify away from U.S. dollar holdings in recent months.