Advanced Search
MyIDEAS: Login

The Case for an International Reserve Diversification Standard

Contents:

Author Info

  • Edwin M. Truman

    ()
    (Institute for International Economics)

  • Anna Wong

    (Institute for International Economics)

Abstract

Rumors about the actual or potential currency diversification of countries’ foreign exchange holdings out of dollars are not a new phenomenon. This working paper argues that such concerns about reserve diversification are exaggerated. We present evidence that the extent of actual diversification has been modest to date. Nevertheless, the potential for reserve diversification adds volatility to foreign exchange markets and can catalyze abrupt exchange rate movements. We argue that policymakers acting in their own national interests can do something constructive to reduce the volatility introduced into foreign exchange and financial markets by rumors of large-scale international foreign exchange reserve diversification. We propose the voluntary adoption by major foreign exchange reserve holders in particular of an International Reserve Diversification Standard consisting of two elements: (1) routine disclosure of the currency composition of official foreign exchange holdings and (2) a commitment by each adherent to adjust gradually the actual currency composition of its reserves to any new benchmark for those holdings.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.petersoninstitute.org/publications/wp/wp06-2.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Peterson Institute for International Economics in its series Working Paper Series with number WP06-2.

as in new window
Length:
Date of creation: May 2006
Date of revision:
Handle: RePEc:iie:wpaper:wp06-2

Contact details of provider:
Postal: 1750 Massachusetts Avenue, NW, Washington, DC 20036-1903
Phone: 202-328-9000
Fax: 202-659-3225
Email:
Web page: http://www.piie.com
More information through EDIRC

Related research

Keywords: Foreign Exchange Reserves; Central Banks; International Investment and Long-Term Capital Movements; International Monetary Arrangements and Institutions;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Chinn, Menzie David & Frankel, Jeffrey A., 2006. "Will the Euro Eventually Surpass the Dollar As Leading International Reserve Currency?," Santa Cruz Center for International Economics, Working Paper Series qt4hz4n9pb, Center for International Economics, UC Santa Cruz.
  2. Ben S. Bernanke & Vincent R. Reinhart & Brian P. Sack, 2004. "Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(2), pages 1-100.
  3. John Cady, 2005. "Does SDDS Subscription Reduce Borrowing Costs for Emerging Market Economies?," IMF Staff Papers, Palgrave Macmillan, vol. 52(3), pages 6.
  4. Matthew Higgins & Thomas Klitgaard, 2004. "Reserve accumulation: implications for global capital flows and financial markets," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 10(Sep).
  5. Mark P. Taylor & Lucio Sarno, 2001. "Official Intervention in the Foreign Exchange Market: Is It Effective and, If So, How Does It Work?," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 839-868, September.
  6. Nouriel Roubini & Brad Setser, 2005. "Will the Bretton Woods 2 regime unravel soon? the risk of a hard landing in 2005-2006," Proceedings, Federal Reserve Bank of San Francisco, issue Feb.
  7. Joshua Aizenman & Jaewoo Lee, 2005. "International Reserves," IMF Working Papers 05/198, International Monetary Fund.
  8. Robert McCauley, 2005. "Distinguishing global dollar reserves from official holdings in the United States," BIS Quarterly Review, Bank for International Settlements, September.
  9. Michael P. Dooley & J. Saul Lizondo & Donald J. Mathieson, 1989. "The Currency Composition of Foreign Exchange Reserves," IMF Staff Papers, Palgrave Macmillan, vol. 36(2), pages 385-434, June.
  10. Takatoshi Ito, 2005. "The Exchange Rate In The Japanese Economy: The Past, Puzzles, And Prospects," The Japanese Economic Review, Japanese Economic Association, vol. 56(1), pages 1-38.
  11. Frenkel, Jacob A, 1974. "The Demand for International Reserves by Developed and Less-Developed Countries," Economica, London School of Economics and Political Science, vol. 41(161), pages 14-24, February.
  12. Lane, Philip & Milesi-Ferretti, Gian Maria, . "External Wealth of Nations," Instructional Stata datasets for econometrics extwealth, Boston College Department of Economics.
  13. Edwin M. Truman, 2005. "Postponing Global Adjustment: An Analysis of the Pending Adjustment of Global Imbalances," Working Paper Series WP05-6, Peterson Institute for International Economics.
  14. Barry J. Eichengreen & Donald J. Mathieson, 2000. "The Currency Composition of Foreign Exchange Reserves," IMF Working Papers 00/131, International Monetary Fund.
  15. Barry Eichengreen, 2005. "Sterling's Past, Dollar's Future: Historical Perspectives on Reserve Currency Competition," NBER Working Papers 11336, National Bureau of Economic Research, Inc.
  16. Anna J. Schwartz, 2000. "The Rise and Fall of Foreign Exchange Market Intervention," NBER Working Papers 7751, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:iie:wpaper:wp06-2. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peterson Institute webmaster).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.