Reports on forex reserves overlook US$ strength

ECONOMICS has been labelled the "dismal science" and there is a view that it takes an overly pessimistic view on the world. Refreshing, therefore, to find an area where a spate of negative stories in the media appears ill-founded and the situation is better than reported.

The Financial Times warns of "The Great Unravelling" of emerging markets due to capital outflows, while Bloomberg reports "The World's Reserves are now Shrinking". Fortunately, most of the problem appears to be with the mathematical abilities of the journalists, rather than the behaviour of capital flows.

The International Monetary Fund's Q4 2014 data show that the US dollar accounts for 63 per cent of global foreign exchange reserves, with the euro at 22 per cent, British pound and Japanese yen at 4 per cent each and other developed economies making up the rest.