The Currency Composition of Foreign Exchange Reserves

38 Pages Posted: 18 Dec 2019

See all articles by Hiro Ito

Hiro Ito

Portland State University - Department of Economics

Robert N. McCauley

University of Oxford - Oxford Centre for Global History; Boston University, Global Development Policy Center

Date Written: December 13, 2019

Abstract

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

Ito, Hiro and McCauley, Robert N., The Currency Composition of Foreign Exchange Reserves (December 13, 2019). BIS Working Paper No. 828, Available at SSRN: https://ssrn.com/abstract=3505368

Hiro Ito (Contact Author)

Portland State University - Department of Economics ( email )

Portland, OR 97207-0751
United States
503-725-3930 (Phone)
503-725-3945 (Fax)

HOME PAGE: www.econ.pdx.edu

Robert N. McCauley

University of Oxford - Oxford Centre for Global History ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Boston University, Global Development Policy Center ( email )

67 Bay State Road
Boston, MA 02215
United States

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