Working Paper: CEPR ID: DP13410
Authors: Matteo Maggiori; Brent Neiman; Jesse Schreger
Abstract: The modern notion of an international currency involves use in areas of international finance and trade that extend well beyond central banks' coffers. In addition to their important roles as foreign exchange reserves, international currencies are most frequently used to denominate corporate and government bonds, bank loans, and import and export invoices. These currencies offer unrivaled liquidity, constituting large shares of the volume on global foreign exchange markets, and are commonly chosen as the anchors targeted by countries with pegged or managed exchange rate regimes. In this short article, we provide evidence suggesting a recent rise in the use of the dollar, and fall of the use in the euro, with similar patterns manifesting across all these aspects of international currency use.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Instability of the eurozone (F65) | Preference for dollar-denominated assets (G19) |
| Dollar's sharp appreciation during financial crisis (F31) | Preference for dollar-denominated assets (G19) |
| Perception of dollar as safe haven (F31) | Shift in global investor expectations towards the dollar (F31) |
| Dollar's liquidity and safety perception (E41) | Shift in global investor expectations towards the dollar (F31) |
| Dollar's share of cross-border corporate bond positions increased (F65) | Preference for dollar-denominated assets (G19) |
| Euro's share of cross-border corporate bond positions decreased (G15) | Preference for dollar-denominated assets (G19) |