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Emerging Markets Review

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Monetary policy, Foreign exchange rates, Foreign investments -- Developing countries, International economic integration, Foreign exchange reserves -- Composition


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.


©2015 This manuscript version is made available under the CC-BY-NC-ND 4.0 license

This is the authors accepted manuscript for an article subsequently published by Elsevier. The definitive version can be found on the publisher website.



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