Working Paper: CEPR ID: DP9007
Authors: Olivier Jeanne
Abstract: Has the US dollar delivered the benefits that the rest of the world is expecting from its holdings of international liquidity? US government debt has been liquid and safe, and it is supplied in sufficient quantity. But it has given a low return to the countries that accumulated the most reserves, especially when those returns are measured in terms of the countries' own consumption. I argue in thispaper that the countries that accumulate the most reserves should expect a low return in terms of their own consumption, and that there is little that international monetary reform can do to change that fact.
Keywords: dollar; foreign exchange reserves; international monetary system; triffin dilemma
JEL Codes: F36; F43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Accumulation of foreign reserves (F31) | Lower consumption-based returns (E21) |
| Real currency appreciation (F31) | Lower consumption-based returns (E21) |
| Accumulation of foreign reserves (F31) | Real currency appreciation (F31) |
| Accumulation of foreign reserves (F31) | Negative consumption-based return on dollar reserves for China (F31) |
| Accumulation of foreign reserves (F31) | Broader trend of lower returns due to currency appreciation (F31) |