Currencies of External Balance Sheets

IMF Working Papers, November 17, 2023

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Paper assembles a comprehensive dataset of the currency composition of countries’ external balance sheets for 50 economies over the period 1990–2020.
Authors: Cian Allen, Deepali Gautam, Luciana Juvenal.
Date: November 17, 2023.
Series: IMF Working Papers, Working Paper No. 2023/237.

The US dollar and the euro still dominate global external balance sheets.
There were striking changes in the currency composition across countries since the 1990s, with many emerging markets having moved from short to long positions in foreign currency, thus moving away from the so-called “original sin”.
Financial and tradeweighted exchange rates are weakly correlated, suggesting the commonly used trade indices do not adequately reflect the wealth effects of currency movements.
The large wealth transfers across countries during COVID-19 and the global financial crises increased global imbalances in the former, and reduced them in the latter.

Coverage: 50 economies.
Time span: 1990–2020.
Focus: currency composition of external balance sheets; currency exposure and currency mismatch risk across countries.

Dominance of the US dollar and the euro implies concentrated currency risks in global external positions.
Transition of many emerging markets from short to long foreign currency positions indicates reduced constraints from “original sin” in some countries.
Weak correlation between financial and tradeweighted exchange rates indicates that trade-based exchange rate indices may not capture wealth effects from currency movements on external balance sheets.
Crisis episodes (COVID-19 and the global financial crisis of 2008-2009) generated large cross-country wealth transfers with opposite effects on global imbalances: increase during COVID-19, reduction during the global financial crisis.

Subject: Currencies, Exchange rates, Financial crises, Financial statements, Foreign currency exposure, Foreign exchange, Global financial crisis of 2008-2009, Money, Public financial management (PFM).
Keywords: Currencies, currency composition, currency exposure, currency mismatch risk, currency movement, debt liability, Exchange rates, Financial statements, foreign currency exposure, Global, Global financial crisis of 2008-2009, international investment position, pound sterling, wealth effect.