Compositional Analysis of Foreign Currency Reserves in the 1999-2007 Period : The Euro vs. The Dollar as Leading Reserve Currency

Aristovnik, Aleksander and Čeč, Tanja (2009): Compositional Analysis of Foreign Currency Reserves in the 1999-2007 Period : The Euro vs. The Dollar as Leading Reserve Currency. Published in: Romanian Journal of Economic Forecasting , Vol. 13, No. 1 (2010): pp. 165-181.

Abstract

Using a critical analysis of the acquired data, this article mainly aims to present the currency composition of the foreign currency reserves of central banks in selected countries in the 1999-2007 period and, on this basis, to establish whether the euro stands any real chances of dethroning the US dollar as the global currency. Among other things, the empirical results, for the most part overlapping with the theoretical and empirical expectations, confirm the hypothesis that in the near future the euro may be regarded as a global reserve currency on a par with the US dollar or it may even become the leading reserve currency. Finally, the empirical analysis also shows that the proportion of the euro in foreign currency reserves differs by the groups of countries concerned; however, in the period under scrutiny it was mainly increasing.

• Item Type: MPRA Paper
• Language: English
• Keywords: international monetary system, international currency, foreign currency reserves, dollar, euro
• Subjects: F - International Economics > F0 - General > F02 - International Economic Order and Integration; F - International Economics > F3 - International Finance > F31 - Foreign Exchange; G - Financial Economics > G2 - Financial Institutions and Services > G20 - General

References

Bergsten, Fred C. (1997). The Dollar and the Euro. Foreign Affairs 76 (4), p. 83–95.

Bernal, Richard L. (1998). The Integration of Small Economies in the Free Trade Area of the Americas, Policy Papers on the Americas, Volume IX, Study 1.

Central bank websites, BIS. http://www.bis.org/cbanks.htm.

Chinn, Menzie, Frankel Jeffrey (2005). Will the Euro Eventually Surpass the Dollar As Leading International Reserve Currency?, NBER Working Paper, No. 11510.

Currency Composition of Official Foreign Exchange Reserves – COFER (2008), IMF. http://www.imf.org/external/np/sta/cofer/eng/cofer.pdf.

Galati, Galati, Wooldridge, Philip (2006). The euro as a reserve currency: a challenge to the pre-eminence of the US dollar? BIS Working Paper, No. 218.

Gibson, Heather D. (1996). International Finance. London: Longman.

Gourinchas, P. O., Rey, H. (2005). From World Banker to World Venture Capitalist: US External Adjustment and the Exorbitant Privilege, Centre for Economic Policy Research Discusion Paper, No. 5220.

Gros, Daniel, Thygesen, Niels (1992). European monetary integration. New York: Addision Wesley Longman Limited.

Lim, Ewe-Ghee (2006). The Euro's Challenge to the Dollar: Different Views from Economists and Evidence from COFER (Currency Composition of Foreign Exchange Reserves) and Other Data, IMF Working Paper, No. 06/153.

Masson, Paul R. (2008). The euro and developing country finance: A survey, The North American Journal of Economics and Finance, Elsevier, vol. 19(2), p. 175-191.

Mundell, Robert A. (1998). What the Euro Means for the Dollar and the International Monetrays System. Atlantic Economic Journal 26 (3), p. 227–37.

Noyer, Christian (2007). Foreign Reserve Accumulation: Some Systemic Implications, Salzburg Global Seminar, Salzburg.

Papaioannou, Elias, Portes, Richard, Siourounis, Gregorios (2006). Optimal currency shares in international reserves. The impact of the euro and the prospects for the dollar, ECB Working paper, No. 694.

Pilbeam, Keith (1998). International Finance. London: Macmillan Business.

Ramaswamy, Srichander (1999). Reserve currency allocation: an alternative methodology, BIS Working paper, No. 72.

Rank Order - Current account balance, CIA – The World Factbook. https://www.cia.gov/library/publications/the-world-factbook/rankorder/2187rank.html.

Review of the International Role of the Euro (2005), ECB, Frankfurt.

Sharma, Sohan, Tracy, Sue in Kumar, Surinder (2004). The Invasion of Iraq: Dollar vs Euro. http://www.thirdworldtraveler.com/Iraq/Iraq_dollar_vs_euro.html.

Suranovic, Steven M. (2005). What is Money? International Finance Theory and Policy. http://internationalecon.com/Finance/Fch40/F40-3.php.

The accumulation of foreign reserves (2006), ECB Working Paper, No. 43. http://www.ecb.int/pub/pdf/scpops/ecbocp43.pdf.

The Global Financial Centres Index (2008), London: Cyty of London. http://www.cityoflondon.gov.uk/NR/rdonlyres/F31E2CB5-A21F-410D-AF51-B01D6DA69B5E/0/BC_RS_GFCI3_FR.pdf.

Wenhao, Li (2004). Currency competition between Euro and Dollar, Business Institute Berlin Working Paper, No. 18.

Wijnholds, J. Onno de Beaufort, Sondergaard, L. (2007). Reserve Accumulation Objective or By-product?, ECB Working Paper, No. 694.

Wooldridge, Philip. (2006). The changing composition of official reserves, BIS Quarterly Review.

Wyplosz, Charles (2001). The Impact of EMU on Europe and the Developing Countries. Oxfort: Oxford University Press.