Working Paper: NBER ID: w24673
Authors: Matteo Maggiori; Brent Neiman; Jesse Schreger
Abstract: We establish currency as an important factor shaping global portfolios. Using a new security-level dataset, we demonstrate that investor holdings are biased toward their own currencies to such an extent that countries typically hold most of the foreign debt securities denominated in their currency. While large firms issue in foreign currency and borrow from foreigners, most firms issue only in local currency and do not directly access foreign capital. These patterns hold broadly across countries except for the United States, as foreign investors hold significant shares of US dollar bonds. The share of dollar-denominated cross-border holdings surged after 2008.
Keywords: international currencies; capital allocation; home-currency bias; foreign investment
JEL Codes: E4; F3; F5; G1; G2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| currency of denomination (E42) | home-currency bias (F31) |
| home-currency bias (F31) | capital allocation (G31) |
| currency of issuance (E42) | ability to attract foreign investment (F21) |
| U.S. dollar-denominated securities (F34) | foreign investment attraction (F21) |
| status of the dollar as an international currency (F33) | capital allocation (G31) |