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Abstract
This study examines the determinants of the currency composition of foreign exchange reserves for both industrial and developing countries. During the period from 1976-85, our empirical results indicate that the currency composition of reserves has been influenced by each country`s exchange rate arrangements, its trade flows with reserve currency countries, and the currency of denomination of its debt-service payments. The evidence is consistent with the view that managing the currency composition of a country`s net foreign asset position is done more cheaply by altering the currency of denomination of assets and liabilities that are not held as reserve assets.
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