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64 Economic Analysis (2010, Vol. 43, No. 1-2, 61-69) Graph 3. Development of foreign exchange reserves in the world since 1995 to present 8000000 7000000 6000000 in millions of USD 5000000 4000000 3000000 2000000 1000000 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Advanced Economies Emerging and Developing Economies Total Foreign Exchange Holdings Source: author’s own processing, data from www.imf.org Foreign exchange reserves are used to cover imports, foreign exchange interventions and balancing the movements in the capital and financial accounts of the balance of payments. As a result of more frequent financial crises in emerging economies, these incentives have been completed in order to protect the economy from the threat of loss of international liquidity (mainly due to a sudden outflow of capital). The main source of foreign exchange reserves in these countries is the net income from international trade and capital movements. Graph 4. Structure of global foreign exchange reserves from 2000 to present 60 50 40 % 30 20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 USD GBP JPY CHF EUR other Source: author’s own processing, data from www.imf.org
Kotlebova, J., Future Stance of Currencies in the IMS, EA (2010, Vol. 43, No, 1-2, 61-69) 65 After the launch of EMU, there has been a visible increase of the EUR in the foreign exchange portfolio and a drop in dollars. However, the U.S. dollar still continues to hold a strong position in the currency structure of the foreign exchange portfolio (about 65%). Importance of currencies for the international market When talking about international currencies, we are interested in the extent to which a certain currency is used outside the domestic economy (the place of its issuance). Some authors, for example, E. G. Lim, refer to it as a currency that is used ʺoutside the domestic economy by non-residents for transactions with residents of the domestic economy or with residents of third countriesʺ E. G. Lim (2006). Another approach attributes an international attribute to the currency based on its scope of usage as a currency of debt denomination issued by non-residents on the capital market. The European Central Bank assesses the international role of a particular currency based on the extent to which this currency is used as denomination for various financial assets and liabilities outside the area of its issuance, as a nominal anchor, reserve and intervention currency for central banks in certain third countries and as a parallel currency used by private agents in some geographically adjacent economies. At the same time, it assesses its importance as a currency (vehicle currency) in some segments of the global foreign exchange market. Therefore, it assesses two major aspects: a) the importance of the currency for the international bond market, foreign exchange market and the international market for goods and services, b) the importance of the currency for third countries. The largest issuers in the international bond market are the globally operating financial institutions and corporations. As foreign currency denomination, they mainly use USD, EUR or GBP. The international debt securities in USD are issued by European banks and corporations, whereas these securities in EUR are issued by investment banks and corporations from the United States, Great Britain and some European countries outside the euro area. The importance of the international bond market in total activities of the international global capital market has fallen due to the development of further financial markets that are open to foreign investors. Therefore, the international bond market is becoming a less significant indicator of a currency of international importance. Central banks in emerging economies and sovereign wealth funds have become large global investors, and have become increasingly active in the issuance of government bonds, corporate bonds and shares in third countries. The stock market has gained a considerable market share and therefore, it dictates the denomination of its own assets, and the international role of currencies. For example, Ch. Thimann (2009, 10) in his study argues that: a) the international bond market is excessively denominated in USD and EUR, and accounts for about 80% of the market, while on the dollar market segment EUR emissions account for 60%, on the EUR market the emissions from the USA and non-euro area countries account for 70% of emissions,
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PUBLISHER Institute of Economic Sci
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C O N T E N T S The Upsurgence of C
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Guest Editor’s Notes The current
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Matray, M., The Upsurgence of Clust
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Author Guidelines General outline A
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