Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe investigate whether the role of national currencies as international reserves was fundamentally altered by the shift from fixed to flexible exchange rates (what we call the "upheaval hypothesis"), a view that gained adherents following the collapse of the Bretton Woods System. We extend standard data on the currency composition of foreign reserves backward and forward in time to test whether there was a shift in the determinants of reserve currency shares around the breakdown of Bretton Woods. We find evidence in favor of this hypothesis. The effects of inertia and the credibility of policies on international reserve currency choice have become stronger post-Bretton Woods, while those associated with network effects have weakened. We also show that negative policy interventions designed to discourage international use of a currency have been easier to implement than positive interventions to encourage international use. These findings speak to current discussions of the prospects of currencies, like the euro and the renminbi, seen to be seeking to acquire international reserve status and others like the U.S. dollar seeking to preserve it. Non-technical summaryThe demand for international reserves and its currency composition in particular have long figured importantly in the literature of international economics.Previous studies of these issues have built on a very limited evidentiary base, however. Data on the currency composition of international reserves is made available to the public by a very limited number of central banks. The IMF gathers such data from its members, but publishes only global aggregates and -more recently -breakdowns between advanced economies and emerging and developing countries.Earlier investigators have assembled these aggregated data from the IMF's website and publications starting in the early 1970s. The latter point in time conveniently coincides with the end of the Bretton Woods System, which is sometimes thought to have occasioned a shift in the demand for international reserves.These studies have yielded strong conclusions. They find that the demand for a currency as international reserves is strongly increasing in issuing country size, that persistence effects are strong and that the credibility of policies is also important, to some extent. The generality of these findings is an open question. They are derived from analysis of a limited period, from the final breakdow...

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractThis paper offers new evidence on the emergence of the dollar as the leading international currency, focusing on its role as currency of denomination in global bond markets. We show that the dollar overtook sterling much earlier than commonly supposed, as early as in 1929.Financial market development appears to have been the main factor helping the dollar to surmount sterling's head start. The finding that a shift from a unipolar to a multipolar international monetary and financial system has happened before suggests that it can happen again. That the shift occurred earlier than commonly believed suggests that the advantages of incumbency are not all they are cracked up to be. And that financial deepening was a key determinant of the dollar's emergence points to the challenges facing currencies aspiring to international status.Key words: foreign public debt, international monetary system, international currencies, role of the US dollar, network externalities, path dependency Non-technical summaryThe global economic and financial crisis has lent new impetus to discussions of the future of the international monetary and financial system. Some advocate moving to a multipolar system in which the US dollar shares its international currency role with the euro, the Chinese renminbi and/or the IMF's Special Drawing Rights. At the Cannes Summit of November 2011, G20 Leaders committed in this respect to taking "concrete steps" to ensure that the international monetary system reflects "the changing equilibrium and the emergence of new international currencies". Some observers expect this change to develop spontaneously, as a natural result of the declining economic and financial dominance of the United States and the increasingly multipolar nature of the global economy, together with the advent of the euro and gradual internationalization of the renminbi. Sceptics object that prospect of a shift to a multipolar monetary and financial system is in fact remote. If it occurs, such a transition would take many decades to complete, in their view.The view that a shift to a multipolar system is unlikely to occur rapidly is rooted in theoretical models where international currency status is characterized by network externalities. These give rise to lock-in and inertia, which benefit the incumbent. Such models rest, in turn, on a conventional historical narrative, epitomized by Triffin (1960), according to which it took betwee...

Summary We assess the role of economic and security considerations in the currency composition of international reserves. We contrast the ‘Mercury hypothesis’ that currency choice is governed by pecuniary factors familiar to the literature, such as economic size and credibility of major reserve currency issuers, against the ‘Mars hypothesis’ that this depends on geopolitical factors. Using data on foreign reserves of 19 countries before World War I, for which the currency composition of reserves is known and security alliances proliferated, our results lend support to both hypotheses. We find that military alliances boost the share of a currency in the partner’s foreign reserve holdings by about 30 percentage points. These findings speak to the implications of possible US disengagement from global geopolitical affairs. In a hypothetical scenario where the United States withdraws from the world, our estimates suggest that long-term US interest rates could rise by as much as 80 basis points, assuming that the composition of global reserves changes but their level does not.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractThis paper offers new evidence on the emergence of the dollar as the leading international currency, focusing on its role as currency of denomination in global bond markets. We show that the dollar overtook sterling much earlier than commonly supposed, as early as in 1929.Financial market development appears to have been the main factor helping the dollar to surmount sterling's head start. The finding that a shift from a unipolar to a multipolar international monetary and financial system has happened before suggests that it can happen again. That the shift occurred earlier than commonly believed suggests that the advantages of incumbency are not all they are cracked up to be. And that financial deepening was a key determinant of the dollar's emergence points to the challenges facing currencies aspiring to international status.Key words: foreign public debt, international monetary system, international currencies, role of the US dollar, network externalities, path dependency Non-technical summaryThe global economic and financial crisis has lent new impetus to discussions of the future of the international monetary and financial system. Some advocate moving to a multipolar system in which the US dollar shares its international currency role with the euro, the Chinese renminbi and/or the IMF's Special Drawing Rights. At the Cannes Summit of November 2011, G20 Leaders committed in this respect to taking "concrete steps" to ensure that the international monetary system reflects "the changing equilibrium and the emergence of new international currencies". Some observers expect this change to develop spontaneously, as a natural result of the declining economic and financial dominance of the United States and the increasingly multipolar nature of the global economy, together with the advent of the euro and gradual internationalization of the renminbi. Sceptics object that prospect of a shift to a multipolar monetary and financial system is in fact remote. If it occurs, such a transition would take many decades to complete, in their view.The view that a shift to a multipolar system is unlikely to occur rapidly is rooted in theoretical models where international currency status is characterized by network externalities. These give rise to lock-in and inertia, which benefit the incumbent. Such models rest, in turn, on a conventional historical narrative, epitomized by Triffin (1960), according to which it took betwee...

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may Non-technical summaryOne of the clearest signs of the US dollar's dominant international role is its status as the all but exclusive currency used for pricing and settling transactions in global oil markets. The prices of West Texas Intermediate, Brent and Dubai crude are all expressed in dollars. The dollar is used as the unit of account for virtually all benchmark prices. NYMEX, the world's largest oil futures market, provides quotes exclusively in dollars. In the global oil market, whether for spot, term or future contracts and irrespective of country, the dollar reigns supreme.The dominance of the dollar in global oil markets is relevant for several key international economic issues. It is essential to the understanding of the dollar's international status and international currency choice. It has major implications for the degree of exchange rate pass-through of oil and commodity price shocks and for forecasting of domestic inflation. Many models used for policy simulations assume that oil prices are set in dollars.The dollar's dominance as unit of account and means of payment in global oil markets is said to rest on two pillars. One, as with all facets of international currency status, are network effects. In other words, oil prices tend to be expressed and transactions to be settled in dollars because the US remained the largest global oil producer for fully a century, until it was overtaken by the Middle East in the 1950s. Once the practice of expressing oil prices in dollars and settling transactions in that unit became so widespread, and a critical mass of transactions was reached, it was costly for individual buyers and sellers to do otherwise. The second pillar is homogeneity of the product. Because oil is a relatively homogenous commodity, there is substantial convenience in quoting prices in just one currency to facilitate comparisons.The literature on the use of the dollar as the currency of denomination, invoicing and settlement in oil-market transactions is pitched at a high level of generality, however. It tends to be based on stylised rather than closely-observed facts. A major constraint facing empirical work on currency choice in international trade in oil, as in other commodities, goods and services, has been lack of detailed data. Moreover, there has been no meaningful empirical work on choice of currency in the oil market because it is presumed that there is no variation in currency usage in...