Intraregional Cross‐Holding of Reserve Currencies: A Proposal for Asia to Deal with the Global Reserve Risks

22 Pages Posted: 12 Jul 2013

See all articles by Gang Fan

Gang Fan

National Economic Research Institute, China Reform Foundation

Bijun Wang

Peking University

Yiping Huang

Peking University, National School of Development

Date Written: July‐August 2013

Abstract

Economists have put forward various proposals to deal with the growing risks of the global reserve currency system. In this paper we recommend that Asian economies hold each other's currencies as part of their foreign reserves. Different from crisis‐fighting currency swap arrangements or crisis‐rescuing fund mechanisms, this mechanism means that reserves would be held, with a regular arrangement in place and on an ongoing basis. We propose that the global reserve system should be pushed in the direction of diversification, which could be a transitional step toward a new single reserve system. This mechanism would not necessitate any currency being a globally accepted reserve currency but would mean that every currency carried some weight in the reserve system. Establishment of such a system would require significant development of regional bond markets and facilitation of macroeconomic surveillance among the economies.

Keywords: Asia, cross‐holding of regional currencies, global reserve system, US dollar

JEL Classification: F330, F360, F420

Suggested Citation

Fan, Gang and Wang, Bijun and Huang, Yiping, Intraregional Cross‐Holding of Reserve Currencies: A Proposal for Asia to Deal with the Global Reserve Risks (July‐August 2013). China & World Economy, Vol. 21, Issue 4, pp. 14-35, 2013, Available at SSRN: https://ssrn.com/abstract=2292820 or http://dx.doi.org/10.1111/j.1749-124X.2013.12026.x

Gang Fan (Contact Author)

National Economic Research Institute, China Reform Foundation ( email )

Beijing
China

Bijun Wang

Peking University ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

Yiping Huang

Peking University, National School of Development ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

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