WORLD CURRENCIES
a function of a central bank's portfolio allocation decision, it would be a one-off jump. If the
is a ref lection of Chinese bonds being incorporated i n t o b e n c h m a r k indices, then we can expect to see a gradual increase in the yuan's use as a reserve currency. This is
something
investors will have a better sense of in the
coming quarters.
How will Brexit
impact
Dollar's share of global reserves fell below 62% for the first time in five years
s t e r l i n g ' s reserve currency status? Central bankers do not seem to think it matters very much. Sterling reserves increased from $365.8 bln when the referendum was held to $480.8 bln at the end of Q3 18.
The
and security associated with the Gilt market
familiarity and
the
quantitative characteristics of sterling suggest its sustainable role as a minor reserve currency.
He re is a co n t e xt in which
percentages maybe
than 1/3 of the yen's share (6.77%). At the end of Q3 18, the yen's share was a little less than 5% and sterling's shy of 4.50%.
share
One way in which the management of the yuan discourages its use as a reserve asset is by dampening the volati l ity.
Off icials permit
the dol lar-yuan exchange rate to move in a narrower band than say the euro-yuan. The
low Marc Chandler
Global Head of Currency Strateg y
volati l ity means
Brown Brothers Harriman FX TRADER MAGAZINE January - March 2019 65
rise in yuan holdings
illuminating: In 1995, three- years after the unceremonious jettison from the ERM, sterling accounted for 2.11% of the allocated reserves, less
FX
that some asset managers and investors wi ll increase the dol lar or Treasury al location to account for China. This helps explain why the dol lar's of
share reserves
ought to be larger than the US share of world GDP, as many countries are sti ll formal ly or informal ly tied
the dol lar. Sterl ing, contrast ,
is
consider abl y more volati le (against both the
dol lar
and euro). C e n t r a l
bankers seem to have decided what appears to be a fairly stable al location of
reserves
in a multiple currency regime. The inclusion of China's al location does not appear to have been much
di f ferent than what
other central bankers had col lectively done.
to by
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