Dominant Currencies and External Adjustment
Staff Discussion Notes, July 20, 2020
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- Dominant Currencies and External Adjustment
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Bibliographic details
- Authors: Gustavo Adler, Camila Casas, Luis M. Cubeddu, Gita Gopinath, Nan Li, Sergii Meleshchuk, Damien Puy, Yannick Timmer
- Published: July 20, 2020
- Series: Staff Discussion Notes
- DOI: https://doi.org/10.5089/9781513512150.006
Summary
- Title: Dominant Currencies and External Adjustment
- Authors: Gustavo Adler, Camila Casas, Luis M. Cubeddu, Gita Gopinath, Nan Li, Sergii Meleshchuk, Damien Puy, Yannick Timmer
- Date: July 20, 2020
- Abstract: Documents extensive use of the US dollar in trade pricing (dominant currency pricing) and in funding (dominant currency financing) and explores implications for how exchange rates can help external rebalancing and buffer macroeconomic shocks.
- Series: Staff Discussion Notes No. 2020/005
- Issue: 005
Major findings and themes
- Dominant currency pricing: The US dollar is extensively used when firms set prices for international trade, affecting how exchange rates transmit to trade prices and volumes.
- Dominant currency financing: Firms’ use of the US dollar in funding raises questions about currency mismatches and their macroeconomic implications.
- External adjustment and exchange rate flexibility: The interaction of dominant currency pricing and financing alters the traditional channels through which exchange rate movements support external rebalancing and absorb shocks.
Policy implications and analysis directions
- Reassess benefits of exchange rate flexibility in environments with dominant currency pricing and financing.
- Consider implications for macroeconomic policy and external rebalancing when invoicing and funding are concentrated in a dominant currency.
Content in this bundle
- Staff Discussion Note