Working Paper: CEPR ID: DP13714
Authors: Pierre-Olivier Gourinchas; Hélène Rey; Maxime Sauzet
Abstract: International currencies fulfill different roles in the world economy with important synergies across those roles. We explore the implications of currency hegemony for the external balance sheet of the United States, the process of international adjustment, and the predictability of the US dollar exchange rate. We emphasize the importance of international monetary spillovers, of the exorbitant privilege, and analyse the emergence of a new `Triffin dilemma'.
Keywords: Exchange Rates; External Assets and Liabilities; International Adjustment; Triffin Dilemma; International Currencies; Global Financial Cycle
JEL Codes: E0; F3; F4; G1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| hegemonic status of the dollar (F33) | reduced need for US to implement restrictive measures in times of deficit (H62) |
| hegemonic status of the dollar (F33) | significant impact on the external balance sheet of the US (F65) |
| dollar's status (F33) | adjustment of external balance through valuation gains (F32) |
| currency composition (F31) | stabilizing effect on US's net external position (F32) |
| dollar's dominance (F31) | predictable fluctuations in the exchange rate (F31) |
| cyclical external imbalance (F32) | depreciation of the dollar (F31) |