Optimal Currency Portfolio of Foregin Exchange Reserves in the Central Bank of I. R. Iran (Post-Modern Portfolio Approach)

Subject Areas : Financial engineering

Saeed  Daei-Karimzadeh ¹ (Department of Economics, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran)

Received: 2017-01-29 Accepted : 2017-04-12 Published : 2017-09-23

Keywords: Optimal Currency Portfolio, Reserve Currency, Post-Modern Portfolio Theory, Central Bank, Efficient Frontier,

Abstract :

One of key aspects of foreign reserves management in central banks is to determine appropriate currency portfolio of foreign exchange reserves. In this study, optimal currency composition of four major reserve currency (including dollar, euro, pound and yen) in currency portfolio of the central bank of Iran analyzed. For this purpose, post modern portfolio approach and quarterly data during 2011 to 2014 used and efficient frontier of the central bank extracted as well. The results indicate that maximum share of dollar, euro and yen in the strategic currency reserves portfolio of the central bank is respectively 35, 29 and 48 percent. Accordingly, if share of the currencies in the currency portfolio was more than these figures, the value of reserves is reduced. Furthermore, pound is a risky currency, so the central bank to hold the currency, mainly should act based on his transaction needs.