Stablecoin Design Basis: Currency Composition of Central Banks' Foreign Exchange Reserves
Editor's Note: This article comes fromDecentralized financial community (ID: China_DeFi), reprinted by Odaily with authorization.
Editor's Note: This article comes fromhttps://www.imf.org/
, reprinted by Odaily with authorization.
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This is an article we use ourselves to learn basic financial theory. When it comes to DeFi business, what the blockchain industry lacks the most is basic industry knowledge. Compared with referring to the macro arguments of Hayek, Keynes, etc., more specific basis is more suitable as the basis for the design of blockchain protocols and token mechanisms. Those who like in-depth research can view the full version of the paper in the text for more inspiration:
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There are currently about 180 national currencies, but only a few are widely used for international transactions such as invoicing, paying for imports, issuing debt or investing overseas. These currencies include the U.S. dollar, the euro, and to a lesser extent the Japanese yen, British pound, and a few others. When a crisis strikes, companies and investors often turn to the dollar for safety.
Central banks also hold the same currency for a long time as foreign exchange reserves. Not surprisingly, these reserves are designed to support the aforementioned international transactions, thereby enabling national authorities to finance balance-of-payments needs, intervene in foreign exchange markets, and provide foreign exchange to domestic agents.
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Reserve holdings change slowly
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An important finding is that, given the international dominance of the dollar (and to some extent the euro), changes in central bank reserve holdings have so far been almost insignificant.
The paper also finds that financial linkages appear to be a key driver of reserve currency holdings, and this trend has grown over the past decade. This suggests that as long as the dollar continues to dominate global finance and trade, its dominance as a reserve currency looks set to persist.
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The pandemic has accelerated advances in financial and payments technology. Potential competition from private issuers such as Diem, Facebook’s blockchain-based payment system, has spurred central bankers to accelerate progress towards central bank digital currencies and cross-border payments. The European Central Bank (ecb) and the People's Bank of China (pboc), among others, are exploring issuing central bank digital currencies, which could increase demand for their currencies.
