The Dollar’s Imperial Circle
Report

The Dollar’s Imperial Circle

Ozge Akinci, Gianluca Benigno, Serra Pelin and Jonathan Turek
Federal Reserve Bank of New York, 2023
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Editorial Rating

8

Qualities

  • Analytical
  • Background
  • For Experts

Recommendation

Strong and stronger: That’s the story of the US dollar’s seemingly unending upward trajectory. Because the United States relies less on manufacturing than do other nations, the American economy has become increasingly insulated from the outside world, while the dollar continues its reign as the world’s currency of choice in trade, banking and foreign exchange. Economists Ozge Akinci, Gianluca Benigno, Serra Pelin and Jonathan Turek provide an expert overview of how hawkish Federal Reserve policy fortifies this feedback loop: The dollar buffers the US economy while emerging markets suffer the knock-on effects.

Summary

The US dollar rules the global monetary system.

Dollar usage in the international monetary system occurs across domains that are larger, in the aggregate, than the American economy is within the world’s economy. The US dollar plays an outsized role in trade invoicing, credit extensions and global value chains. Some 60% of global foreign currency reserves are held in US dollars. Foreign investors hold about one-third of outstanding US treasury instruments. Almost two-thirds of global and overseas foreign currency liabilities are denominated in US dollars. Approximately 40% of global payments occur in dollars.

At the same time, ...

About the Authors

Ozge Akinci and Gianluca Begnino are with the Federal Reserve Bank of New York. Serra Pelin is with the University of California, Berkeley. Jonathan Turek is with JST Advisors.

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