International Finance Discussion Papers (IFDP)
June 1994
The Dollar as an Official Reserve Currency Under EMU
Michael P. Leahy
Abstract:
This paper analyzes official reserve-holding behavior in the EU countries in an attempt to assess the effect EMU might have on official holdings of dollar reserves. A wide range of projections are presented for the effect of EMU on the overall demand for reserves, some based on earlier research results and some on new estimates. In the estimation and simulation of the behavior of EU countries in the last half of the 1980s, the contributions of country-specific factors appear to swamp the systematic components that had been isolated in earlier research. Earlier research results are also used to assess the effect of EMU on the currency composition of reserves. It is argued that official dollar holdings could decline on the order of 35 percent or more from current dollar holdings, although the range of uncertainty is quite large.
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