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The currency composition of foreign exchange reserves

Author

Listed:
  • Hiro Ito
  • Robert N McCauley
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.

Suggested Citation

  • Hiro Ito & Robert N McCauley, 2019. "The currency composition of foreign exchange reserves," BIS Working Papers 828, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:828
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    References listed on IDEAS

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    More about this item

    Keywords

    foreign exchange reserves; international currency; key currency; currency zones; invoicing of trade; currency of international debt; foreign exchange reserve management;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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