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• 1. [Article] International Reserves Before and After the Global Crisis: Is There No End to Hoarding?

  We evaluate the global financial crisis (GFC) and the structural changes of recent years that have been associated with new patterns of hoarding international reserves. We confirm that the determining ...

  Citation × Citation Citation Abstract Copy Title: International Reserves Before and After the Global Crisis: Is There No End to Hoarding? Author: Aizenman, Joshua, Cheung, Yin-Wong, Ito, Hiro Year: 2014 We evaluate the global financial crisis (GFC) and the structural changes of recent years that have been associated with new patterns of hoarding international reserves. We confirm that the determining factors of international reserves are evolving with developments in the global economy. From 1999–2006, the pre-GFC period, gross saving is associated with higher international reserves in developing and emerging markets. An outward direct-investment effect is consistent with the view of diverting international assets from the international reserve account, the “Joneses’ effect” lends support to the rivalry hoarding motivation, and commodity price volatility induces hoarding against uncertainty. During the 2007–2009 GFC, those variables became insignificant or displayed the opposite effect, probably reflecting the frantic market conditions that prevent a normal economic relationship to hold. Nevertheless, the propensity to continue to trade displays a strong positive effect. The 2010–2012 post-crisis results are dominated by factors that have been mostly overlooked in earlier decades. While the effects of swap agreements and gross saving are in line with expectations, we find a change in the link between outward direct investment and international reserves in the pre- and post-crisis period. The macro-prudential policy is found to complement international reserve accumulation. Developed countries display very different demand behaviors for international reserves. Higher gross saving has been associated with lower international reserve holding because developed countries are more likely to deploy their savings in the global capital market. The presence of sovereign wealth funds is associated with a lower level of international reserve holding in industrial countries. Our predictive exercise affirms that if an emerging market economy experienced a deficiency in international reserves holdings in 2012, that economy tended to experience exchange-rate depreciation against the U.S. dollar during the recent adjustment to the news of tapering quantitative easing (QE) in 2013. Title: International Reserves Before and After the Global Crisis: Is There No End to Hoarding? Author: Aizenman, Joshua, Cheung, Yin-Wong, Ito, Hiro Year: 2014 We evaluate the global financial crisis (GFC) and the structural changes of recent years that have been associated with new patterns of hoarding international reserves. We confirm that the determining factors of international reserves are evolving with developments in the global economy. From 1999–2006, the pre-GFC period, gross saving is associated with higher international reserves in developing and emerging markets. An outward direct-investment effect is consistent with the view of diverting international assets from the international reserve account, the “Joneses’ effect” lends support to the rivalry hoarding motivation, and commodity price volatility induces hoarding against uncertainty. During the 2007–2009 GFC, those variables became insignificant or displayed the opposite effect, probably reflecting the frantic market conditions that prevent a normal economic relationship to hold. Nevertheless, the propensity to continue to trade displays a strong positive effect. The 2010–2012 post-crisis results are dominated by factors that have been mostly overlooked in earlier decades. While the effects of swap agreements and gross saving are in line with expectations, we find a change in the link between outward direct investment and international reserves in the pre- and post-crisis period. The macro-prudential policy is found to complement international reserve accumulation. Developed countries display very different demand behaviors for international reserves. Higher gross saving has been associated with lower international reserve holding because developed countries are more likely to deploy their savings in the global capital market. The presence of sovereign wealth funds is associated with a lower level of international reserve holding in industrial countries. Our predictive exercise affirms that if an emerging market economy experienced a deficiency in international reserves holdings in 2012, that economy tended to experience exchange-rate depreciation against the U.S. dollar during the recent adjustment to the news of tapering quantitative easing (QE) in 2013. Close

• 2. [Article] The Interest Rate Effect on Private Saving: Alternative Perspectives

  Using an uneven panel of 135 countries from 1995 to 2014, we investigate the link between interest rates and private saving, and focus on whether the interest rate effect is dominated by the income (i.e., ...

  Citation × Citation Citation Abstract Copy Title: The Interest Rate Effect on Private Saving: Alternative Perspectives Author: Aizenman, Joshua, Cheung, Yin-Wong, Ito, Hiro Year: 2016 Using an uneven panel of 135 countries from 1995 to 2014, we investigate the link between interest rates and private saving, and focus on whether the interest rate effect is dominated by the income (i.e., negative) or the substitution (i.e., positive) effect. With the baseline estimation, we find that the real interest rate has the substitution effect on private saving only for a full-country sample and a group of Asian economies. We also examine if low real - or nominal - interest rates have any impact on the link between the real interest rate and the private saving rate. We find that among developing countries, when the nominal interest rate is not too low, we detect the substitution effect of the real interest rate on private saving. However, among industrial and emerging economies, the substitution effect is detected only when the nominal interest rate is lower than 2.5%. In contrast, emerging-market Asian countries are found to have the income effect when the nominal interest rate is below 2.5%. When we examine the interactive effects between the real interest rate and the variables for economic conditions and policies, we find that the real interest rate has a negative impact - i.e., income effect - on private saving if any output volatility, old dependency, or financial development is above a certain threshold. Further, when the real interest rate is below 1.5%, greater output volatility would lead to higher private saving in developing countries. Lastly, we find that old dependency ratios, public healthcare expenditure, and financial development have negative impacts on private saving, but such impacts in absolute values tend to become smaller as the real interest rate becomes lower. Title: The Interest Rate Effect on Private Saving: Alternative Perspectives Author: Aizenman, Joshua, Cheung, Yin-Wong, Ito, Hiro Year: 2016 Using an uneven panel of 135 countries from 1995 to 2014, we investigate the link between interest rates and private saving, and focus on whether the interest rate effect is dominated by the income (i.e., negative) or the substitution (i.e., positive) effect. With the baseline estimation, we find that the real interest rate has the substitution effect on private saving only for a full-country sample and a group of Asian economies. We also examine if low real - or nominal - interest rates have any impact on the link between the real interest rate and the private saving rate. We find that among developing countries, when the nominal interest rate is not too low, we detect the substitution effect of the real interest rate on private saving. However, among industrial and emerging economies, the substitution effect is detected only when the nominal interest rate is lower than 2.5%. In contrast, emerging-market Asian countries are found to have the income effect when the nominal interest rate is below 2.5%. When we examine the interactive effects between the real interest rate and the variables for economic conditions and policies, we find that the real interest rate has a negative impact - i.e., income effect - on private saving if any output volatility, old dependency, or financial development is above a certain threshold. Further, when the real interest rate is below 1.5%, greater output volatility would lead to higher private saving in developing countries. Lastly, we find that old dependency ratios, public healthcare expenditure, and financial development have negative impacts on private saving, but such impacts in absolute values tend to become smaller as the real interest rate becomes lower. Close

• 3. [Article] Monetary Policy Spillovers and the Trilemma in the New Normal: Periphery Country Sensitivity to Core Country Conditions

  We investigate why and how the financial conditions of developing and emerging market countries (peripheral countries) can be affected by the movements in the center economies - the U.S., Japan, the Eurozone, ...

  Citation × Citation Citation Abstract Copy Title: Monetary Policy Spillovers and the Trilemma in the New Normal: Periphery Country Sensitivity to Core Country Conditions Author: Aizenman, Joshua, Chinn, Menzie David, Ito, Hiro Year: 2015 We investigate why and how the financial conditions of developing and emerging market countries (peripheral countries) can be affected by the movements in the center economies - the U.S., Japan, the Eurozone, and China. We apply a two-step approach. First, we estimate the sensitivity of countries’ financial variables to the center economies [policy interest rate, stock market prices, and the real effective exchange rates (REER)] while controlling for global and domestic factors. Next, we examine the association of the estimated sensitivity coefficients with the macroeconomic conditions, policies, real and financial linkages with the center economies, and the level of institutional development. In the last two decades, for most financial variables, the strength of the links with the center economies have been the dominant factor while the movements of policy interest rate also appear sensitive to global financial shocks around the emerging market crises of the late 1990s and since the global financial crisis of 2008. While certain macroeconomic and institutional variables are important, the arrangement of open macro policies such as the exchange rate regime and financial openness are also found to have direct influence on the sensitivity to the center economies. An economy that pursues greater exchange rate stability and financial openness faces a stronger link with the center economies through policy interest rates and real effective exchange rate (REER) movements. We also find exchange market pressure (EMP) in peripheral economies is sensitive to the movements of the center economies’ REER and EMP during and after the global financial crisis. Open macro policy arrangements, especially exchange rate regimes, also have indirect effects on the strength of financial linkages, interacting with other macroeconomic conditions. Thus, trilemma policy arrangements, including exchange rate flexibility, continue to affect the sensitivity of developing countries to policy changes and shocks in the center economies. Title: Monetary Policy Spillovers and the Trilemma in the New Normal: Periphery Country Sensitivity to Core Country Conditions Author: Aizenman, Joshua, Chinn, Menzie David, Ito, Hiro Year: 2015 We investigate why and how the financial conditions of developing and emerging market countries (peripheral countries) can be affected by the movements in the center economies - the U.S., Japan, the Eurozone, and China. We apply a two-step approach. First, we estimate the sensitivity of countries’ financial variables to the center economies [policy interest rate, stock market prices, and the real effective exchange rates (REER)] while controlling for global and domestic factors. Next, we examine the association of the estimated sensitivity coefficients with the macroeconomic conditions, policies, real and financial linkages with the center economies, and the level of institutional development. In the last two decades, for most financial variables, the strength of the links with the center economies have been the dominant factor while the movements of policy interest rate also appear sensitive to global financial shocks around the emerging market crises of the late 1990s and since the global financial crisis of 2008. While certain macroeconomic and institutional variables are important, the arrangement of open macro policies such as the exchange rate regime and financial openness are also found to have direct influence on the sensitivity to the center economies. An economy that pursues greater exchange rate stability and financial openness faces a stronger link with the center economies through policy interest rates and real effective exchange rate (REER) movements. We also find exchange market pressure (EMP) in peripheral economies is sensitive to the movements of the center economies’ REER and EMP during and after the global financial crisis. Open macro policy arrangements, especially exchange rate regimes, also have indirect effects on the strength of financial linkages, interacting with other macroeconomic conditions. Thus, trilemma policy arrangements, including exchange rate flexibility, continue to affect the sensitivity of developing countries to policy changes and shocks in the center economies. Close

• 4. [Article] Living with the Trilemma Constraint: Relative Trilemma Policy Divergence, Crises, and Output Losses for Developing Countries

  This paper investigates the potential impacts of the degree of divergence in open macroeconomic policies in the context of the trilemma hypothesis. Using an index that measures the relative policy divergence ...

  Citation × Citation Citation Abstract Copy Title: Living with the Trilemma Constraint: Relative Trilemma Policy Divergence, Crises, and Output Losses for Developing Countries Author: Aizenman, Joshua, Ito, Hiro Year: 2014 This paper investigates the potential impacts of the degree of divergence in open macroeconomic policies in the context of the trilemma hypothesis. Using an index that measures the relative policy divergence among the three trilemma policy choices, namely monetary independence, exchange rate stability, and financial openness, we find that emerging market countries have adopted trilemma policy combinations with the least degree of relative policy divergence in the last fifteen years. We find that a developing or emerging market country with a higher degree of relative policy divergence is more likely to experience a currency or debt crisis. However, a developing or emerging market country with a higher degree of relative policy divergence tends to experience smaller output losses when it experiences a currency or banking crisis. Latin American crisis countries tended to reduce their financial integration in the aftermath of a crisis, while this is not the case for the Asian crisis countries. The Asian crisis countries tended to reduce the degree of relative policy divergence in the aftermath of the crisis, probably aiming at macroeconomic policies that are less prone to crises. The degree of relative policy divergence is affected by past crisis experiences -- countries that experienced currency crisis or a currency-banking twin crisis tend to adopt a policy combination with a smaller degree of policy divergence. Title: Living with the Trilemma Constraint: Relative Trilemma Policy Divergence, Crises, and Output Losses for Developing Countries Author: Aizenman, Joshua, Ito, Hiro Year: 2014 This paper investigates the potential impacts of the degree of divergence in open macroeconomic policies in the context of the trilemma hypothesis. Using an index that measures the relative policy divergence among the three trilemma policy choices, namely monetary independence, exchange rate stability, and financial openness, we find that emerging market countries have adopted trilemma policy combinations with the least degree of relative policy divergence in the last fifteen years. We find that a developing or emerging market country with a higher degree of relative policy divergence is more likely to experience a currency or debt crisis. However, a developing or emerging market country with a higher degree of relative policy divergence tends to experience smaller output losses when it experiences a currency or banking crisis. Latin American crisis countries tended to reduce their financial integration in the aftermath of a crisis, while this is not the case for the Asian crisis countries. The Asian crisis countries tended to reduce the degree of relative policy divergence in the aftermath of the crisis, probably aiming at macroeconomic policies that are less prone to crises. The degree of relative policy divergence is affected by past crisis experiences -- countries that experienced currency crisis or a currency-banking twin crisis tend to adopt a policy combination with a smaller degree of policy divergence. Close

• 5. [Article] The More Divergent, the Better? Lessons on Trilemma Policies and Crises for Asia

  This paper investigates the potential impacts of the degree of divergence in open macroeconomic policies in the context of the trilemma hypothesis. Using an index that measures the extent of policy divergence ...

  Citation × Citation Citation Abstract Copy Title: The More Divergent, the Better? Lessons on Trilemma Policies and Crises for Asia Author: Aizenman, Joshua, Ito, Hiro Year: 2014 This paper investigates the potential impacts of the degree of divergence in open macroeconomic policies in the context of the trilemma hypothesis. Using an index that measures the extent of policy divergence among the three trilemma policy choices—monetary independence, exchange rate stability, and financial openness—we find that emerging market economies have adopted trilemma policy combinations with the smallest degree of policy divergence in the last 15 years. We then investigate whether and to what extent the degree of open macro policy convergence affects the probability of a crisis and find that a developing or emerging market economy with a higher degree of policy divergence is more likely to experience a currency or debt crisis. We also compare the development of trilemma policies around the crisis period for the groups of Latin American crisis countries in the 1980s and the Asian crisis countries in the 1990s. We find that Latin American crisis countries tended to close their capital accounts in the aftermath of a crisis, while that is not the case for the Asian crisis countries. The Asian crisis countries tended to reduce the degree of policy divergence in the aftermath of the crisis, which possibly meant they decided to adopt open macro policies that made their economies less prone to a crisis. Title: The More Divergent, the Better? Lessons on Trilemma Policies and Crises for Asia Author: Aizenman, Joshua, Ito, Hiro Year: 2014 This paper investigates the potential impacts of the degree of divergence in open macroeconomic policies in the context of the trilemma hypothesis. Using an index that measures the extent of policy divergence among the three trilemma policy choices—monetary independence, exchange rate stability, and financial openness—we find that emerging market economies have adopted trilemma policy combinations with the smallest degree of policy divergence in the last 15 years. We then investigate whether and to what extent the degree of open macro policy convergence affects the probability of a crisis and find that a developing or emerging market economy with a higher degree of policy divergence is more likely to experience a currency or debt crisis. We also compare the development of trilemma policies around the crisis period for the groups of Latin American crisis countries in the 1980s and the Asian crisis countries in the 1990s. We find that Latin American crisis countries tended to close their capital accounts in the aftermath of a crisis, while that is not the case for the Asian crisis countries. The Asian crisis countries tended to reduce the degree of policy divergence in the aftermath of the crisis, which possibly meant they decided to adopt open macro policies that made their economies less prone to a crisis. Close

• 6. [Article] Emerging Market Currency Composition of Reserves, Denomination of Trade and Currency Movements

  This article analyses the relationships among the unit of account and means of exchange functions of an international currency, on the one hand, and its store of value in official use, on the other hand. ...

  Citation × Citation Citation Abstract Copy Title: Emerging Market Currency Composition of Reserves, Denomination of Trade and Currency Movements Author: Mccauley, Robert N., Ito, Hiro, Chan, Tracy Year: 2015 This article analyses the relationships among the unit of account and means of exchange functions of an international currency, on the one hand, and its store of value in official use, on the other hand. Historical evidence links the currency composition of reserves to currency movements. The currency composition of reserves is strongly related in the cross-section to both currency movements and the currency denomination of trade. Data limitations make it hard to distinguish these two factors. A panel analysis of 5 countries from central and eastern Europe shows that both trade invoicing and currency movements drive changing official reserve composition. Implications are suggested for the prospects for the renminbi enlarging its current small portion of official foreign exchange reserves. Title: Emerging Market Currency Composition of Reserves, Denomination of Trade and Currency Movements Author: Mccauley, Robert N., Ito, Hiro, Chan, Tracy Year: 2015 This article analyses the relationships among the unit of account and means of exchange functions of an international currency, on the one hand, and its store of value in official use, on the other hand. Historical evidence links the currency composition of reserves to currency movements. The currency composition of reserves is strongly related in the cross-section to both currency movements and the currency denomination of trade. Data limitations make it hard to distinguish these two factors. A panel analysis of 5 countries from central and eastern Europe shows that both trade invoicing and currency movements drive changing official reserve composition. Implications are suggested for the prospects for the renminbi enlarging its current small portion of official foreign exchange reserves. Close

• 7. [Article] Balance Sheet Effects on Monetary and Financial Spillovers: The East Asian Crisis Plus 20

  We study how the financial conditions in the Center Economies [the U.S., Japan, and the Euro area] impact other countries over the period 1986 through 2015. Our methodology relies upon a two-step approach. ...

  Citation × Citation Citation Abstract Copy Title: Balance Sheet Effects on Monetary and Financial Spillovers: The East Asian Crisis Plus 20 Author: Aizenman, Joshua, Chinn, Menzie D., Ito, Hiro Year: 2017 We study how the financial conditions in the Center Economies [the U.S., Japan, and the Euro area] impact other countries over the period 1986 through 2015. Our methodology relies upon a two-step approach. We focus on five possible linkages between the center economies (CEs) and the non-Center economics, or peripheral economies (PHs), and investigate the strength of these linkages. For each of the five linkages, we first regress a financial variable of the PHs on financial variables of the CEs while controlling for global factors. Next, we examine the determinants of sensitivity to the CEs as a function of country-specific macroeconomic conditions and policies, including the exchange rate regime, currency weights, monetary, trade and financial linkages with the CEs, the levels of institutional development, and international reserves. Extending our previous work (Aizenman et al., 2016), we devote special attention to the impact of currency weights in the implicit currency basket, balance sheet exposure, and currency composition of external debt. We find that for both policy interest rates and the real exchange rate (REER), the link with the CEs has been pervasive for developing and emerging market economies in the last two decades, although the movements of policy interest rates are found to be more sensitive to global financial shocks around the time of the emerging markets' crises in the late 1990s and early 2000s, and since 2008. When we estimate the determinants of the extent of connectivity, we find evidence that the weights of major currencies, external debt, and currency compositions of debt are significant factors. More specifically, having a higher weight on the dollar (or the euro) makes the response of a financial variable such as the REER and exchange market pressure in the PHs more sensitive to a change in key variables in the U.S. (or the euro area) such as policy interest rates and the REER. While having more exposure to external debt would have similar impacts on the financial linkages between the CEs and the PHs, the currency composition of international debt securities does matter. Economies more reliant on dollar-denominated debt issuance tend to be more vulnerable to shocks emanating from the U.S. Title: Balance Sheet Effects on Monetary and Financial Spillovers: The East Asian Crisis Plus 20 Author: Aizenman, Joshua, Chinn, Menzie D., Ito, Hiro Year: 2017 We study how the financial conditions in the Center Economies [the U.S., Japan, and the Euro area] impact other countries over the period 1986 through 2015. Our methodology relies upon a two-step approach. We focus on five possible linkages between the center economies (CEs) and the non-Center economics, or peripheral economies (PHs), and investigate the strength of these linkages. For each of the five linkages, we first regress a financial variable of the PHs on financial variables of the CEs while controlling for global factors. Next, we examine the determinants of sensitivity to the CEs as a function of country-specific macroeconomic conditions and policies, including the exchange rate regime, currency weights, monetary, trade and financial linkages with the CEs, the levels of institutional development, and international reserves. Extending our previous work (Aizenman et al., 2016), we devote special attention to the impact of currency weights in the implicit currency basket, balance sheet exposure, and currency composition of external debt. We find that for both policy interest rates and the real exchange rate (REER), the link with the CEs has been pervasive for developing and emerging market economies in the last two decades, although the movements of policy interest rates are found to be more sensitive to global financial shocks around the time of the emerging markets' crises in the late 1990s and early 2000s, and since 2008. When we estimate the determinants of the extent of connectivity, we find evidence that the weights of major currencies, external debt, and currency compositions of debt are significant factors. More specifically, having a higher weight on the dollar (or the euro) makes the response of a financial variable such as the REER and exchange market pressure in the PHs more sensitive to a change in key variables in the U.S. (or the euro area) such as policy interest rates and the REER. While having more exposure to external debt would have similar impacts on the financial linkages between the CEs and the PHs, the currency composition of international debt securities does matter. Economies more reliant on dollar-denominated debt issuance tend to be more vulnerable to shocks emanating from the U.S. Close

• 8. [Article] Trade Invoicing in Major Currencies in the 1970s-1990s: Lessons for Renminbi Internationalization

  In this paper, we investigate how much a major currency is used for trade invoicing by focusing primarily on the experiences of the U.S. dollar, the Japanese yen, and the Deutsche mark (DM) in the 1970s ...

  Citation × Citation Citation Abstract Copy Title: Trade Invoicing in Major Currencies in the 1970s-1990s: Lessons for Renminbi Internationalization Author: Ito, Hiro, Masahiro, Kawai Year: 2016 In this paper, we investigate how much a major currency is used for trade invoicing by focusing primarily on the experiences of the U.S. dollar, the Japanese yen, and the Deutsche mark (DM) in the 1970s through the 1990s. We then attempt to draw lessons for China’s renminbi (RMB) internationalization. Our data on the shares of the three major currencies in export invoicing show that the dollar was unequivocally a global invoicing currency, and that the DM was the most important regional currency in Europe while the yen was never a global or a regional currency. DM invoicing was driven by European countries’ trade ties with Germany. In contrast, the yen was not widely used for trade invoicing by Asia-Oceania countries despite the latter’s strong trade ties with Japan. Our regression analysis on the determinants of the major currency share in trade invoicing (also including UK pound sterling, the French franc, the Italian lira, and the Swiss franc) in the 1970-1998 period shows that the invoicing share of a major currency tended to be positively affected by the degree of other economies’ trade ties with the major currency country and negatively affected by the degree of their financial development or openness. Also, the major currency share in trade invoicing was affected by both other economies' assigned weights of the major currency in their implicit currency baskets and these economies’ trade shares with major-currency zone countries. Economies belonging to the U.S. dollar (or DM) zone tended to invoice their trade more in the dollar (or DM) and less in the DM (or dollar). The use of yen for trade invoicing was not much affected by these factors. European countries largely belonged to the DM zone and tended to use the DM for trade invoicing, whereas Asia-Oceania countries belonged mainly to the U.S. dollar zone, leading to a high degree of dollar use. We also find that major currency countries tended to invoice their trade in their own currencies when they had a large presence in international trade, high levels of per capita income, and financial markets that were developed and open. For China, its low level of per capita income, limited financial openness, and the presence of U.S. dollar zone countries in Asia stand as a challenge to the nation’s ambition to promote the RMB as a major trade-invoicing currency. Title: Trade Invoicing in Major Currencies in the 1970s-1990s: Lessons for Renminbi Internationalization Author: Ito, Hiro, Masahiro, Kawai Year: 2016 In this paper, we investigate how much a major currency is used for trade invoicing by focusing primarily on the experiences of the U.S. dollar, the Japanese yen, and the Deutsche mark (DM) in the 1970s through the 1990s. We then attempt to draw lessons for China’s renminbi (RMB) internationalization. Our data on the shares of the three major currencies in export invoicing show that the dollar was unequivocally a global invoicing currency, and that the DM was the most important regional currency in Europe while the yen was never a global or a regional currency. DM invoicing was driven by European countries’ trade ties with Germany. In contrast, the yen was not widely used for trade invoicing by Asia-Oceania countries despite the latter’s strong trade ties with Japan. Our regression analysis on the determinants of the major currency share in trade invoicing (also including UK pound sterling, the French franc, the Italian lira, and the Swiss franc) in the 1970-1998 period shows that the invoicing share of a major currency tended to be positively affected by the degree of other economies’ trade ties with the major currency country and negatively affected by the degree of their financial development or openness. Also, the major currency share in trade invoicing was affected by both other economies' assigned weights of the major currency in their implicit currency baskets and these economies’ trade shares with major-currency zone countries. Economies belonging to the U.S. dollar (or DM) zone tended to invoice their trade more in the dollar (or DM) and less in the DM (or dollar). The use of yen for trade invoicing was not much affected by these factors. European countries largely belonged to the DM zone and tended to use the DM for trade invoicing, whereas Asia-Oceania countries belonged mainly to the U.S. dollar zone, leading to a high degree of dollar use. We also find that major currency countries tended to invoice their trade in their own currencies when they had a large presence in international trade, high levels of per capita income, and financial markets that were developed and open. For China, its low level of per capita income, limited financial openness, and the presence of U.S. dollar zone countries in Asia stand as a challenge to the nation’s ambition to promote the RMB as a major trade-invoicing currency. Close

• 9. [Article] Clamoring for Greenbacks: Explaining the Resurgence of the U.S. Dollar in International Debt

  This paper investigates the determinants of currency denomination in international debt. Using data on currency shares for international debt securities for 82 countries from 1995 through 2013, we find ...

  Citation × Citation Citation Abstract Copy Title: Clamoring for Greenbacks: Explaining the Resurgence of the U.S. Dollar in International Debt Author: Ito, Hiro, Rodriguez, Cesar M. Year: 2015 This paper investigates the determinants of currency denomination in international debt. Using data on currency shares for international debt securities for 82 countries from 1995 through 2013, we find that while the extent of foreign currency issuance has not changed much since the 1990s, especially for developing countries, the currency composition has shifted, especially between the U.S. dollar and the euro. Before the Global Financial Crisis (GFC) of 2008, the share of the U.S. dollar has been on a downward trend while that of the euro had been on a steady rising trend, but since the crisis, the U.S. dollar share rebounded. With these findings, we estimate the determinants for the shares of the U.S. dollar, the euro, and the total of foreign currencies in international debt denomination. Our empirical analysis yields the following findings. First, not only does economic size matter, but also a country’s monetary, financial and fiscal stance. Second, countries seem to increase their reliance on the euro first before increasing their issuance of debt in domestic currency. Third, financial opening has a persistent, effective influence on both the extent of foreign currency denomination and the shares of individual major currencies. Lastly, by applying the baseline estimation model only to the data before 2007, we conduct a counterfactual analysis to examine what would have happened to the shares of the major currencies had it not been for the GFC. Our results show that without the occurrence of the GFC, the share of the euro in international debt in 2013 would have been 9 percentage points higher at 24%, while the share of the dollar would have been 13 percentage points lower at 54%. Considering a conservative scenario for the near future, the dollar will likely continue dominating the denomination of international debt. In 2020 the share of the dollar in international debt could be at 63% while the share of the euro could be 18%. Title: Clamoring for Greenbacks: Explaining the Resurgence of the U.S. Dollar in International Debt Author: Ito, Hiro, Rodriguez, Cesar M. Year: 2015 This paper investigates the determinants of currency denomination in international debt. Using data on currency shares for international debt securities for 82 countries from 1995 through 2013, we find that while the extent of foreign currency issuance has not changed much since the 1990s, especially for developing countries, the currency composition has shifted, especially between the U.S. dollar and the euro. Before the Global Financial Crisis (GFC) of 2008, the share of the U.S. dollar has been on a downward trend while that of the euro had been on a steady rising trend, but since the crisis, the U.S. dollar share rebounded. With these findings, we estimate the determinants for the shares of the U.S. dollar, the euro, and the total of foreign currencies in international debt denomination. Our empirical analysis yields the following findings. First, not only does economic size matter, but also a country’s monetary, financial and fiscal stance. Second, countries seem to increase their reliance on the euro first before increasing their issuance of debt in domestic currency. Third, financial opening has a persistent, effective influence on both the extent of foreign currency denomination and the shares of individual major currencies. Lastly, by applying the baseline estimation model only to the data before 2007, we conduct a counterfactual analysis to examine what would have happened to the shares of the major currencies had it not been for the GFC. Our results show that without the occurrence of the GFC, the share of the euro in international debt in 2013 would have been 9 percentage points higher at 24%, while the share of the dollar would have been 13 percentage points lower at 54%. Considering a conservative scenario for the near future, the dollar will likely continue dominating the denomination of international debt. In 2020 the share of the dollar in international debt could be at 63% while the share of the euro could be 18%. Close

• 10. [Article] East Asian Economies and Financial Globalization In the Post-Crisis World

  This paper assesses the East Asian Economies’ openness to cross-border capital flows and exchange rate arrangements in the past decades, with the main focus on emerging market economies. Using Mundell’s ...

  Citation × Citation Citation Abstract Copy Title: East Asian Economies and Financial Globalization In the Post-Crisis World Author: Aizenman, Joshua, Ito, Hiro Year: 2016 This paper assesses the East Asian Economies’ openness to cross-border capital flows and exchange rate arrangements in the past decades, with the main focus on emerging market economies. Using Mundell’s trilemma indexes, we note that the convergence of the three policy goals in East Asia toward a “middle ground” pre-dates the convergence of these indices in other regions. Another more recent development involves the high level of international reserve (IR) holdings–a feature that is known as the most distinct characteristic of Asian EMEs. Financial globalization seems to have made asset prices and interest rates in Asian EMEs more vulnerable to global movements of capital, that is, essentially to the monetary policy of the center country, the United-States. We document changing goods trade structure but rather stable reliance on the Dollar in East Asian Economies. That is, the U.S. presence in trade ties with Asian economies has been declining over the last two decades, whereas China’s has been on a rising trend, yet the share of trade among Asian economies with the dollar zone economies has been quite stable. That means that the dominant position of the dollar has been influential in the Asian region. One big dollar-zone economy that has been increasing its presence in Asia is China. However, China has been recently making efforts to “internationalize” its currency, the yuan (RMB). Hence, if China succeeds in its internationalization efforts and creates the RMB zone, the dynamics between the U.S. and Asia will most likely change; it is, however, uncertain to what extent the RMB will become an international currency. Recently, Chinese authorities have become more interventionist because of the slowdown of the economy and financial markets. For now, the Asian region’s international finance continues to be dollar-centric. Title: East Asian Economies and Financial Globalization In the Post-Crisis World Author: Aizenman, Joshua, Ito, Hiro Year: 2016 This paper assesses the East Asian Economies’ openness to cross-border capital flows and exchange rate arrangements in the past decades, with the main focus on emerging market economies. Using Mundell’s trilemma indexes, we note that the convergence of the three policy goals in East Asia toward a “middle ground” pre-dates the convergence of these indices in other regions. Another more recent development involves the high level of international reserve (IR) holdings–a feature that is known as the most distinct characteristic of Asian EMEs. Financial globalization seems to have made asset prices and interest rates in Asian EMEs more vulnerable to global movements of capital, that is, essentially to the monetary policy of the center country, the United-States. We document changing goods trade structure but rather stable reliance on the Dollar in East Asian Economies. That is, the U.S. presence in trade ties with Asian economies has been declining over the last two decades, whereas China’s has been on a rising trend, yet the share of trade among Asian economies with the dollar zone economies has been quite stable. That means that the dominant position of the dollar has been influential in the Asian region. One big dollar-zone economy that has been increasing its presence in Asia is China. However, China has been recently making efforts to “internationalize” its currency, the yuan (RMB). Hence, if China succeeds in its internationalization efforts and creates the RMB zone, the dynamics between the U.S. and Asia will most likely change; it is, however, uncertain to what extent the RMB will become an international currency. Recently, Chinese authorities have become more interventionist because of the slowdown of the economy and financial markets. For now, the Asian region’s international finance continues to be dollar-centric. Close