The Ecu and reserve management

T.R.G. Bingham

No 17/1992, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: The exceptional growth of the Ecu financial market during the past decade and a half has important implications for international reserve management strategies, particularly of countries outside the EMS linking their currencies to the Ecu. After examining the various criteria used to determine the currency composition of a central bank's reserve portfolio (maintenance of confidence in the exchange rate, minimisation of transactions costs, maintenance of the value of reserves in terms of imports, achievement of goals with respect to liquidity, risk and return), the paper considers the strengths and weaknesses of the Ecu as a reserve currency. It· concludes that, despite the absence of a single lender of last resort and the need to develop the clearing and settlement system for private Ecus, the Ecu has clear advantages as a reserve asset, The principal arguments for holding a part of the reserve portfolio in this unit are increased credibility of the Ecu Jink, absence of offsetting action by, or pressure from, another central bank of issue and a reduced mismatch between assets and liabilities leading to greater stability of revenue.

Date: 1992
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:rdp1992_017

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