The Currency Composition of Foreign Exchange Reserves
38 Pages Posted: 18 Dec 2019
Date Written: December 13, 2019
This paper analyses the factors that govern the choice of the currency composition of official foreign exchange reserves. First, we introduce a new panel dataset on the key currencies in foreign exchange reserves of about 60 economies in the 1999-2017 period. Second, we show that the currency composition of reserves relates strongly to the co-movement of the domestic currency with key currencies and the currency invoicing of trade. These factors represent attributes of the dollar or the euro rather than of the United States or the euro area. They exert about equal effects on the currency composition of foreign exchange reserves. We demonstrate that these findings are robust to a host of other possible factors.
Keywords: foreign exchange reserves, international currency; key currency; currency zones; invoicing of trade, currency of international debt, foreign exchange reserve management
JEL Classification: E44, E58, F14, F31
Suggested Citation: Suggested Citation