The recent trend in dollar dominance
The US dollar became even more dominant as the prime foreign currency for international borrowing during the period from 2008-2018. Dollar borrowing by emerging markets substantially increased during the same period.
Global liquidity: changing instrument and currency patterns
Authors: Iñaki Aldasoro, Torsten Ehlers
From: BIS
Why borrow in US dollars?
Because, argue Eren and Malamud, it is the currency of the country that pursues aggressive monetary policy in global downturns, lowering the real debt burdens of firms. But, they warn, while this monetary policy stance of the US is stabilizing ex-post, it is destabilizing ex-ante because it provokes high leverage and reduces expected welfare.
Dominant Currency Debt
Authors: Egemen Eren, Semyon Malamud
From: BIS, Swiss Finance Institute
The link between borrowing in US dollars and invoicing in US dollars
Low dollar-denominated borrowing costs make it attractive for non-U.S. exporters to invoice their sales in dollars, so that they can more easily tap the cheap dollar funding. A large volume of dollar invoicing in international trade creates an increased demand for safe dollar deposits, thereby conferring an exorbitant privilege on the dollar in terms of reduced borrowing costs. This two-way feedback loop reinforces the role of the dollar as the global currency of choice, even when other countries are roughly similar to the U.S. in terms of economic fundamentals such as their share of overall world-wide imports.
Banking, Trade, and the Making of a Dominant Currency
Authors: Gita Gopinath, Jeremy C. Stein
From: Harvard University
Can the euro eventually replace the dollar?
And there are other barriers to the euro becoming an international reserve currency. One is that this would be incompatible with Germany’s established economic model, which is based on manufacturing and exports.
The German barrier to a global euro
By: Sebastian Dullien – ECFR
