Working Paper: NBER ID: w25469
Authors: Emmanuel Farhi; Matteo Maggiori
Abstract: Currently both the International Monetary System (IMS) and the International Price Systems (IPS) are dominated by the U.S. The emergence of China, both as reserve currency and as a currency of invoicing, is likely to disrupt this status quo. We provide a framework to understand the forces that will shape this transition and identify sources of instability. We highlight the risk of an abrupt shift triggered by a run on the dollar.
Keywords: No keywords provided
JEL Codes: D42; E12; E42; E44; F3; F5; G15; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| China's growing economic weight (F62) | US's dominant position (F01) |
| shift in currency denomination from dollar to renminbi (F31) | US fiscal situation (E62) |
| increase in share of goods priced in renminbi (F31) | safety zone of US debt (H63) |
| US's fiscal discipline (H69) | confidence crisis (H12) |
| China's increasing net issuance of safe assets (H63) | US dominance (F52) |