• By
  • Chiara Albanese

Despite complaints from France and regular reminders that the ECB is watching nervously, the euro keeps on flying high.

One reason, among several, could lie in central banks, and how they build up and rejig their foreign-currency reserves.

In particular, China, whose currency has been sliding for months, is in focus.

Citigroup notes that since June 2013, global reserves are up by about $600 billion. Without China, the figure would be $150 billion. The accepted market wisdom is that China buys bucks to hold down the yuan, and recycles a lot of those dollars into euros.

“In low volume periods such as the present, the directional flows from reserve managers may be material,” said Steven Englander, head of G-10 currency strategy at Citigroup in a note.

“If we assume that China’s reserves accumulation in the first instance is 90% dollar and they want no more than 50% of dollar in reserves, then just over $400 billion would have been accumulated since September,” Citigroup explained.

Citi suggests that Chinese authorities would have had to sell $180 billion between September and March, or $1.15 billion a day, leaving a meaningful dent in the buck.

That’s a tricky tide for European policymakers to fight.