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Central banks looking to invest more of their


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#1 jjc

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Posted 10 January 2007 - 05:49 PM

http://today.reuters...C1-ArticlePage4


By Jamie McGeever

LONDON (Reuters) - Central banks around the world are looking to invest more of their $4.75 trillion foreign exchange reserves in equities at the expense of bonds, but the implications for currencies are far from clear.

The issue of reserve diversification re-emerged late last year as the dollar fell against major currencies, hitting multi-year lows against the euro and sterling.

The International Monetary Fund also published its latest snapshot of global reserves at the end of December.

Of the $4.75 trillion total, the currency composition of $3.151 trillion is known. And of that, $2.07 trillion is in U.S. dollar-denominated assets.

Central banks are starting to behave more like yield-hungry, market-savvy institutional investors and many are setting aside chunks of their reserves for specific investment vehicles.

With the dollar share of reserves -- where currency allocation is known -- broadly steady at 65.6 percent, the focus for investors and central bank watchers has become the asset composition of these reserves as much as the currency breakdown.

David Bloom, head of global currency research and strategy at HSBC in London, notes that central banks are so flush with reserves that they barely know what to do with them. They are buying a wider range of currencies than ever and diversifying across a wider range of asset classes than ever before too. Continued