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The Economics of Common Currencies (Collected Works of Harry Johnson) by Alexander K. Swoboda, Harry G. Johnson

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Chapter 10

THE IMPACT OF EXTERNAL MARKETS FOR NATIONAL CURRENCIES ON CENTRAL BANK RESERVES

ROBERT Z. ALIBER

University of Chicago

Two competing propositions have been advanced about the impact of the growth of the Eurodollar or external currency market on investment behaviour. A common view is that the market has facilitated large shifts of funds between assets denominated in different currencies, and hence altered the distribution of international reserves among central banks. That is, the ability to borrow and lend in the external market may lead banks and non-banks to alter the currency mix of their assets and liabilities. In 1969 and 1970, large shifts of funds into dollars in response to U.S. monetary tightness were attributed to the market. ...

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