Is It Desirable for Asian Economies to Hold More Asian Assets in Their Foreign Exchange Reserves?â€”The Peopleâ€™s Republic of Chinaâ€™s Answer
AbstractWe calculate the return on the major Asian currency denominated long-term government bonds in terms of a basket of the Peopleâ€™s Republic of Chinaâ€™s (PRC) imports of goods and services, namely the real return on those assets from the PRCâ€™s perspective. In the sample period of January 2002 to December 2009, the real return on United States (US) treasury bills is lower than that of Japan, India, the Republic of Korea, Singapore, or Thailandâ€™s government bonds, and a little higher than that of Malaysiaâ€™s government bonds. This result shows that it is desirable for the PRC to substitute Asian currency denominated government bonds for US Treasury bills to maintain the purchasing power of its foreign exchange reserves. To some extent, this research supports the proposal by Fan, Wang, and Huang (2010) on the cross holding of regional currencies in foreign exchange reserves.
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Bibliographic InfoPaper provided by East Asian Bureau of Economic Research in its series Finance Working Papers with number 23230.
Date of creation: Aug 2011
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Foreign exhangce reserves; nominal and real returns; PRC; Currency denominated assets;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
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