The Selection of International Investment Currencies: Evidence from International Bond Portfolios

Jiyoun An and Bokyeong Park
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Jiyoun An: Kyung Hee University
Bokyeong Park: Kyung Hee University

East Asian Economic Review, 2026, vol. 30, issue 3, 343-367

Abstract: This paper examines the determinants of international investment currency selection using bilateral data on cross-border bond holdings from the IMF’s CPIS. Focusing on the private-sector store-of-value function, we analyze how bilateral linkages, currency issuer characteristics, and global conditions shape the demand for denomination currency. We find that bilateral financial linkages are the most robust determinant of currency shares. Financial development in the currency-issuing country increases a currency’s portfolio share, highlighting the importance of market depth and liquidity. The results also indicate that currency allocation is largely driven by persistent structural factors rather than short-run fluctuations. Finally, we find some indications that geopolitical alignment may affect currency allocation in the future.

Keywords: International Investment Currency; Bond Portfolios; Financial Linkages (search for similar items in EconPapers)
JEL-codes: F02 F30 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ris:eaerev:023654

DOI: 10.11644/KIEP.EAER.2026.30.3.468

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