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Currency composition of reserves, trade invoicing and currency movements

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  • Ito, Hiroyuki
  • McCauley, Robert N.
  • Chan, Tracy

Abstract

This article analyses the relationships among the unit of account and means of exchange functions of an international currency, on the one hand, and its store of value in official use, on the other hand. Historical evidence links the currency composition of reserves to currency movements. The currency composition of reserves is strongly related in the cross-section to both currency movements and the currency denomination of trade. Data limitations make it hard to distinguish these two factors. A panel analysis of 5 countries from central and Eastern Europe shows that both trade invoicing and currency movements drive changing official reserve composition. Implications are suggested for the prospects for the renminbi enlarging its current small portion of official foreign exchange reserves.

Suggested Citation

  • Ito, Hiroyuki & McCauley, Robert N. & Chan, Tracy, 2015. "Currency composition of reserves, trade invoicing and currency movements," Emerging Markets Review, Elsevier, vol. 25(C), pages 16-29.
    • Handle: RePEc:eee:ememar:v:25:y:2015:i:c:p:16-29
    DOI: 10.1016/j.ememar.2015.11.001
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. How We Learned Not to Say No to Gold… In International Reserves
      by avgevorkyan in Development Economics on 2018-03-12 21:21:03

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    3. Chokri Zehri & David McMillan, 2020. "Restrictive policy impacts in emerging economies," Cogent Economics & Finance, Taylor & Francis Journals, vol. 8(1), pages 1815979-181, January.
    4. Ito, Hiro & McCauley, Robert N., 2020. "Currency composition of foreign exchange reserves," Journal of International Money and Finance, Elsevier, vol. 102(C).
    5. Mateane, Lebogang, 2023. "Risk preferences, global market conditions and foreign debt: Is there any role for the currency composition of FX reserves?," Research in Economics, Elsevier, vol. 77(3), pages 402-418.
    6. Jochen Schanz, 2019. "Reserve management in emerging market economies: trends and challenges," BIS Papers chapters, in: Bank for International Settlements (ed.), Reserve management and FX intervention, volume 104, pages 45-55, Bank for International Settlements.
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    9. Liu, Tao & Wang, Xiaosong & Woo, Wing Thye, 2019. "The road to currency internationalization: Global perspectives and chinese experience," Emerging Markets Review, Elsevier, vol. 38(C), pages 73-101.
    10. Ito, Hiro & Kawai, Masahiro, 2016. "Trade invoicing in major currencies in the 1970s–1990s: Lessons for renminbi internationalization," Journal of the Japanese and International Economies, Elsevier, vol. 42(C), pages 123-145.
    11. Chinn, Menzie D. & Ito, Hiro & McCauley, Robert N., 2022. "Do central banks rebalance their currency shares?," Journal of International Money and Finance, Elsevier, vol. 122(C).
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    13. Iwasaki, Ichiro, 2018. "International Presence of the Japanese Study of Russian and East European Economies," RRC Working Paper Series 74, Russian Research Center, Institute of Economic Research, Hitotsubashi University.
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    15. Chokri Zehri, 2020. "The Domestic Impacts And Spillovers Of Capital Controls," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 65(227), pages 31-66, October –.
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    More about this item

    Keywords

    International currency; Currency denomination of trade; Currency composition of official reserves; Dollar zone;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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