Stability or Upheaval? The Currency Composition of International Reserves in the Long Run

Barry Eichengreen, Livia Chiţu and Arnaud Mehl
Authors registered in the RePEc Author Service: Livia Chitu

IMF Economic Review, 2016, vol. 64, issue 2, 354-380

Abstract: The paper analyzes how the role of different national currencies as international reserves was affected by the shift from fixed to flexible exchange rates. It extends data on the currency composition of foreign reserves backward and forward to investigate whether there was a shift in the determinants of the currency composition of international reserves around the breakdown of Bretton Woods. It finds that inertia and policy-credibility effects in international reserve currency choice have become stronger post-Bretton Woods, while network effects appear to have weakened. The paper shows that negative policy interventions designed to discourage international use of a currency have been more effective than positive interventions to encourage its use. These findings speak to the prospects of currencies like the euro and the renminbi seeking to acquire international reserve status and others like the U.S. dollar seeking to preserve it.

Date: 2016
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