This paper investigates why non-U.S. central banks accumulate large holdings of dollar-denominated foreign exchange reserves, focusing on a previously under-emphasized motive: the currency mismatch of …
Prepared as background for the IMF's Integrated Policy Framework, this paper builds a three-period small open economy in which monetary policy, capital inflow controls, sterilized foreign exchange …
PublishedClassicQuarterly Journal of EconomicsOnline 27 Oct 2020Published Mar 2021
A currency's role as the unit of account in which trade is invoiced and its role as a safe store of value reinforce each other, because households who buy dollar-priced imports want dollar-denominated …
Because most trade is invoiced in a few dominant currencies rather than in the producer's or the destination's currency, it is the dollar exchange rate and not the bilateral one that drives import …