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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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