Recent sanctions imposed by the US on Russia have called into question the US dollar’s dominant role as a reserve currency. This column argues that sanctions will, in fact, reinforce the dollar’s dominance rather than weakening it. It emphasises the importance of ‘collateral’ demand for reserves, especially by developing countries. Countries which choose to exit the dollar
China’s high household savings rate remains a puzzle, with potential explanations including demographic, policy, and financial causes. This column investigates China’s savings rate using individual income and spending transactions linked to demographic characteristics and financial information on loan applications and credit availability. The authors match bank customers to
In the history of the EU’s Stability and Growth Pact, some governments have used optimism over medium-term growth to postpone fiscal adjustment or justify expansions. In 2011, EU member states were invited to strengthen their medium-term fiscal planning, but EU surveillance is still very much centred on the year ahead. This column argues that multiannual expenditure paths
Emine Boz, Camila Casas, Georgios Georgiadis, Gita Gopinath, Helena Le Mezo , Arnaud Mehl, Tra Nguyen
We are accustomed to drawing an automatic link between exchange rates and exports through the trade competitiveness channel of exchange rates. This column highlights another important channel through which exchange rates affect global trade activity – the impact of a stronger dollar on tighter financial conditions, which in turn adversely affects credit availability for working capital of exporting firms.
Figure 1 is a striking illustration of how global trade activity fluctuates with the strength of the dollar. The chart plots the ratio of world goods exports to world GDP over the past 20 years or so. We see the strong growth in exports before the 2007-2009 Global Crisis, a deep decline as the crisis hit, and an equally sharp rebound in its aftermath. Thereafter, global trade was on a gentle declining trend relative to GDP until the Covid-19 pandemic struck last year. What i
Georgios Georgiadis, Helena Le Mezo , Arnaud Mehl, Cédric Tille 26 July 2021
The US dollar has a dominant role in currency invoicing of global trade, covering around 40% of international transactions, followed by the euro and the renminbi. This column analyses the effects of economic fundamentals and government policies on currency invoicing patterns. Strategic complementarities and integration in global value chains are both important determinants of dollar and euro invoicing in trade with the US and the euro area, while the establishment of currency swap lines by the People’s Bank of China has been associated with increases in renminbi invoicing, with an adverse effect on dollar use.