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  • Currency Composition of Foreign Exchange Reserves: A Comparative Study

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    Author(s)
    Soesmanto, Tommy N.
    Primary Supervisor
    Swift, Robyn
    Other Supervisors
    Nguyen, Tom
    Year published
    2009
    Metadata
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    Abstract
    The United States (US) dollar has been the principal currency used for reserve purposes by central banks worldwide for many years. However, uncertainties about the future strength of the US economy and the exchange value of the US dollar have led to pressure for a number of central banks particularly in developing countries, to consider shifting their US dollar reserve holdings to other reserve currencies. Since its creation in 1999 the euro has represented a serious alternative to the US dollar. Some authors have forecast that the euro is likely to replace the US dollar as the principal reserve currency in the near future. ...
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    The United States (US) dollar has been the principal currency used for reserve purposes by central banks worldwide for many years. However, uncertainties about the future strength of the US economy and the exchange value of the US dollar have led to pressure for a number of central banks particularly in developing countries, to consider shifting their US dollar reserve holdings to other reserve currencies. Since its creation in 1999 the euro has represented a serious alternative to the US dollar. Some authors have forecast that the euro is likely to replace the US dollar as the principal reserve currency in the near future. If a major portfolio re-balancing away from the US dollar occurs, there may be serious implications for both the US and the global economy. A deeper understanding of how central banks manage currency composition of foreign exchange (FX) reserves needs to be established in order to evaluate the likely developments in this area. The transaction theory and the mean-variance theory have served as the main conceptual frameworks for studies in this field. They have been useful in identifying factors which may theoretically affect FX reserve holdings. However, empirical studies of the two theories have been very limited in both number and in the range and number of countries covered. This study contributes to research in this area by presenting a comprehensive empirical investigation of the determinants of the currency composition of FX reserves, based on the frameworks proposed by the transaction theory, as well as that proposed by the meanvariance theory. The study covers a wider range of countries than previous estimations to date, including a detailed comparative examination of the management of FX reserves for a single country, Australia. It also uses more recent data than any previous studies, which allows a more complete analysis of the impact of the euro since its introduction in 1999...
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    Thesis Type
    Thesis (PhD Doctorate)
    Degree Program
    Doctor of Philosophy (PhD)
    School
    Department of Accounting, Finance and Economics
    DOI
    https://doi.org/10.25904/1912/669
    Copyright Statement
    The author owns the copyright in this thesis, unless stated otherwise.
    Item Access Status
    Public
    Subject
    foreign exchange
    FX
    foreign exchange reserves
    central banks
    currency composition
    reserve currency
    reserve currencies
    principal reserve currency
    RBA
    Reserve Bank of Australia
    mean-variance theory
    mean-variance portfolio
    transaction theory
    Publication URI
    http://hdl.handle.net/10072/365601
    Collection
    • Theses - Higher Degree by Research

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