Currency composition of reserves,trade invoicing and currency movements |
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| Institution: | 1. Portland State University, Portland, OR 97207, USA;2. Bank for International Settlements (BIS), Centralbahnplatz 2, CH-4002, Basel, Switzerland;1. World Bank Development Economics Research Group, United States;2. International Finance Corporation, United States;1. Integrated Policy Analysis Group, Federal Reserve Bank of New York, 33 Liberty Street, New York, NY 10045, United States;2. NBER, United States;3. Geneva Graduate Institute of International and Development Studies, Switzerland;4. CEPR, United Kingdom |
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| Abstract: | This article analyses the relationships among the unit of account and means of exchange functions of an international currency, on the one hand, and its store of value in official use, on the other hand. Historical evidence links the currency composition of reserves to currency movements. The currency composition of reserves is strongly related in the cross-section to both currency movements and the currency denomination of trade. Data limitations make it hard to distinguish these two factors. A panel analysis of 5 countries from central and Eastern Europe shows that both trade invoicing and currency movements drive changing official reserve composition. Implications are suggested for the prospects for the renminbi enlarging its current small portion of official foreign exchange reserves. |
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