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The Selection of International Investment Currencies: Evidence from International Bond Portfolios

Author

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  • Jiyoun An

    (Kyung Hee University)

  • Bokyeong Park

    (Kyung Hee University)

Abstract

This paper examines the determinants of international investment currency selection using bilateral data on cross-border bond holdings from the IMF’s CPIS. Focusing on the private-sector store-of-value function, we analyze how bilateral linkages, currency issuer characteristics, and global conditions shape the demand for denomination currency. We find that bilateral financial linkages are the most robust determinant of currency shares. Financial development in the currency-issuing country increases a currency’s portfolio share, highlighting the importance of market depth and liquidity. The results also indicate that currency allocation is largely driven by persistent structural factors rather than short-run fluctuations. Finally, we find some indications that geopolitical alignment may affect currency allocation in the future.

Suggested Citation

  • Jiyoun An & Bokyeong Park, 2026. "The Selection of International Investment Currencies: Evidence from International Bond Portfolios," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 30(3), pages 343-367, September.
    • Handle: RePEc:ris:eaerev:023654
    DOI: 10.11644/KIEP.EAER.2026.30.3.468
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    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F30 - International Economics - - International Finance - - - General

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