The Currency Composition of Foreign Exchange Reserves

Michael Dooley, J. Saul Lizondo and Donald J. Mathieson
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J. Saul Lizondo: International Monetary Fund
Donald J. Mathieson: International Monetary Fund

IMF Staff Papers, 1989, vol. 36, issue 2, 385-434

Abstract: Determinants of the currency composition of foreign exchange reserves are examined for both industrial and developing countries. Empirical results indicate that the currency composition of reserves during the period 1976-85 has been influenced by each country's exchange rate arrangements, trade flows with reserve-currency countries, and the currency in which its debt service payments are denominated. The evidence suggests that managing the currency composition of a country's net foreign asset position is done more cheaply by altering the currency of denomination of assets and liabilities that are not held as reserve assets.

Date: 1989
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