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

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  • Barry Eichengreen
  • Livia Chiţu
  • Arnaud Mehl

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.

Suggested Citation

  • Barry Eichengreen & Livia Chiţu & Arnaud Mehl, 2016. "Stability or Upheaval? The Currency Composition of International Reserves in the Long Run," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(2), pages 354-380, June.
  • Handle: RePEc:pal:imfecr:v:64:y:2016:i:2:p:354-380
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    Cited by:

    1. OGAWA Eiji & MUTO Makoto, 2018. "What Determines Utility of International Currencies?," Discussion papers 18077, Research Institute of Economy, Trade and Industry (RIETI).
    2. Linda S. Goldberg & Signe Krogstrup, 2018. "International capital flow pressures," Staff Reports 834, Federal Reserve Bank of New York.
    3. 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.
    4. Liu, Tao & Lu, Dong & Woo, Wing Thye, 2019. "Trade, finance and international currency," Journal of Economic Behavior & Organization, Elsevier, vol. 164(C), pages 374-413.
    5. Michael Bordo & Eric Monnet & Alain Naef, 2017. "The Gold Pool (1961-1968) and the Fall of the Bretton Woods System. Lessons for Central Bank Cooperation," NBER Working Papers 24016, National Bureau of Economic Research, Inc.

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