Autore
Mayer, Joerg

Titolo
U.S. Dollar and Deutschmark as reserve assets
Periodico
European University Institute of Badia Fiesolana (Fi). Department of Economics - Working papers
Anno: 1990 - Fascicolo: 23 - Pagina iniziale: 1 - Pagina finale: 30

The application of mean-variance portfolio models to the reserve management of central banks reveals that authorities do not optimally diversify their foreign-exchange portfolio. The paper suggests that the underdiversification into DM assets is largely due to the resistance of the Bundesbank to promotethe DM's international role motivated by the fear to loose control over monetary policy. The paper then presents a model on reserve diversification based on the view that diversification away from dollar holdings was mainly caused by the removal of the convertibility constraint on official dollar balances. The analysis suggests that this constraint was reestablished by the evolution of the Deutschmark as a second main reserve currency - attributing the dominant role of the dollar to the size of the U.S. economy and its capital market and the increasing role of the Deutschmark to the Bundesbank's reputation to provide a predictable and low-inflationary currency - and that reserve diversification can therefore be regarded as a stabilizing element in the international monetary system.



Testo completo: http://hdl.handle.net/1814/362

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