Determinants of the currency composition of foreign exchange reserves are examined for both industrial and developing countries. Empirical results indicate that the currency composition of reserves during the period 1976-85 has been influenced by each country's exchange rate arrangements, trade flows with reserve-currency countries, and the currency in which its debt service payments are denominated. The evidence suggests 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.