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Stability or upheaval? The currency composition of international reserves in the long run

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We analyze how the role of different national currencies as international reserves was affected by the shift from fixed to flexible exchange rates. We extend 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. We find that inertia and policy-credibility effects in international reserve currency choice have become stronger post-Bretton Woods, while network effects appear to have weakened. We show 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.

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  • Eichengreen, Barry & Livia, Chitu & Mehl, Arnaud, 2014. "Stability or upheaval? The currency composition of international reserves in the long run," Globalization and Monetary Policy Institute Working Paper 201, Federal Reserve Bank of Dallas.
  • Handle: RePEc:fip:feddgw:201
    DOI: 10.24149/gwp201
    Note: Published as: Eichengreen, Barry, Livia Chiţu and Arnaud Mehl (2016), "Stability or Upheaval? The Currency Composition of International Reserves in the Long Run," IMF Economic Review 64 (2): 354-380.
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    1. Saidi, Nasser, 1981. "The square-root law, uncertainty and international reserves under alternative regimes : Canadian experience, 1950-1976," Journal of Monetary Economics, Elsevier, vol. 7(3), pages 271-290.
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    Cited by:

    1. Liu, Tao & Wang, Xiaosong, 2016. "The Road to International Currency: Global Perspective and Chinese Experience," MPRA Paper 72877, University Library of Munich, Germany.
    2. Matteo Maggiori & Emmanuel Farhi, 2015. "A Model of the International Monetary System," Working Paper 349586, Harvard University OpenScholar.
    3. Agnès Bénassy-Quéré, 2015. "The euro as an international currency," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01299083, HAL.
    4. Eichengreen, Barry & Flandreau, Marc & Mehl, Arnaud & Chitu, Livia, 2017. "International Currencies Past, Present, and Future: Two Views from Economic History," OUP Catalogue, Oxford University Press, number 9780190659455.
    5. 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.

    More about this item

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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