Reserve currency preferences of central banks: the case of Korea

We study the portfolio of foreign reserves of the central bank of the Republic of Korea for the 1980–1987 period within the context of two popular portfolio models. For the first time in the literature we use data on the composition of official reserves for an individual country and also on the currency denomination of imports. The results are rather encouraging. We found evidence in support of the mean-variance model. Furthermore, the data did not reject an imports based version of the consumption capital asset pricing model (CCAPM). However, the power of the test was low so that no strong conclusions can be drawn with regard to the validity of the CCAPM.