Central Banks' Management of Foreign Exchange Reserves

Elvio Dal Bosco

Open Economies Review, 1998, vol. 9, issue 1, 665-684

Abstract: This paper analyzes whether currency instability results from official reserves management, as central banks strive to minimize risk, keep a degree of liquidity degree, minimize risk, and a good return on their portfolio. In recent years the dollar share in official reserves increased, at the expense of the Deutsche mark and yen. The evidence suggests that movements in the exchange rate exert the only influence on reserve currency shares; the long-term interest rate does not have a significant impact on reserves composition. These results confirm the World Gold Council thesis, according to which central banks, by investing excess reserves in short-terms assets, are believed to have optimized their portfolio return. Copyright Kluwer Academic Publishers 1998

Keywords: instability; reserve currency; liquidity; exchange rate (search for similar items in EconPapers)
Date: 1998
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DOI: 10.1023/A:1008329207204

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