Money & Finance

Note on Reserve Currencies

  • Blog Post Date 01 April, 2012
  • IGC Research on India
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Menzie Chinn

University of Wisconsin

This project examines the likelihood that the current reserve currencies will retain their status in the near future, given the persistence in the composition of reserve holdings. However, due to paucity of complete data on the switchovers in lead reserve currencies, a great deal of uncertainty attends any forecasts. Hence, it is possible that new reserve currencies might appear with greater rapidity than anticipated. Of the candidates for new reserve currencies among the major emerging economies, China's Renminbi is the most plausible. However, even under optimistic assumptions regarding economic growth and financial development, Renminbi's status as a major reserve currency is some time off. A role for regional reserve currency status in the near future is much more likely. The advent of a mullti‐reserve currency world is unlikely to have negative consequences for global financial stability (and might even be stability enhancing). However, achieving the prerequisites for reserve currency status will force sacrifices in terms of policy autonomy.

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