Trade Invoicing, Bank Funding, and Central Bank Reserve Holdings
AbstractWe develop a model that shows how the currency denomination of a country's imports influences the funding structure of its banking system, and in turn, the currency composition of its central bank's reserve holdings. The link between the dollar's role in bank funding and its role as a central bank reserve currency is stronger when the country's fiscal capacity is limited, and when exchange rates are volatile. In the data, there is a pronounced cross-country relationship between the fraction of imports that are dollar invoiced, and the fraction of central-bank foreign-exchange reserves that are held in dollars.
CitationGopinath, Gita, and Jeremy C. Stein. 2018. "Trade Invoicing, Bank Funding, and Central Bank Reserve Holdings." AEA Papers and Proceedings, 108: 542-46. DOI: 10.1257/pandp.20181065
- E44 Financial Markets and the Macroeconomy
- E58 Central Banks and Their Policies
- F14 Empirical Studies of Trade
- F31 Foreign Exchange
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages