Do China and Oil Exporters Influence Major Currency Configurations?

47 Pages Posted: 23 Dec 2008

See all articles by Marcel Fratzscher

Marcel Fratzscher

DIW Berlin; Centre for Economic Policy Research (CEPR)

Arnaud Mehl

European Central Bank (ECB)

Date Written: November 25, 2008


This paper analyses the impact of the shift away from a US dollar focus of systemically important emerging market economies (EMEs) on configurations between the US dollar, the euro and the yen. Given the difficulty that fixed or managed US dollar exchange rate regimes remain pervasive and reserve compositions mostly kept secret, the identification strategy of the paper is to analyse the market impact on major currency pairs of official statements made by EME policy-makers about their exchange rate regime and reserve composition. Developing a novel database for 18 EMEs, we find that such statements not only have a statistically but also an economically significant impact on the euro, and to a lesser extent the yen against the US dollar. The findings suggest that communication hinting at a weakening of EMEs' US dollar focus contributed substantially to the appreciation of the euro against the US dollar in recent years. Interestingly, EME policy-makers appear to have become more cautious in their communication more recently. Overall, the results underscore the growing systemic importance of EMEs for global exchange rate configurations.

Keywords: communication, exchange rate regime, reserves, euro, dollar, emerging economies

JEL Classification: E58, F30, F31, F36, G15

Suggested Citation

Fratzscher, Marcel and Mehl, Arnaud, Do China and Oil Exporters Influence Major Currency Configurations? (November 25, 2008). ECB Working Paper No. 973. Available at SSRN:

Marcel Fratzscher (Contact Author)

DIW Berlin ( email )

Mohrenstra├če 58
Berlin, 10117

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

Arnaud Mehl

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

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