Finally, the authors find that the reference currency, or the choice of risk-free asset, is the chief determinant in the optimal composition of reserves in the mean-variance framework. But in practice, where there is a managed exchange rate regime, the reference currency is naturally the currency or currencies to which a country's own currency is pegged. This suggests a major challenge to the dollar if more countries move away from managing their exchange rates with respect to the dollar and adopt euro-based anchors or baskets in which the euro figures strongly.


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