Thanks, Beth Anne, and thanks for the chance to talk to you at present.1 I wish to welcome everybody to this Third Convention on the Worldwide Roles of the U.S. Greenback, which is collectively organized by the Federal Reserve Financial institution of New York and the Federal Reserve Board.
When folks speak in regards to the “greenback,” they’re referring to numerous roles it performs on the world stage—together with a bodily foreign money used worldwide, monetary property denominated or redeemable in U.S. {dollars}, or a settlement unit utilized in transactions. In all of those, the position of the U.S. greenback in international finance and its financial and monetary stability implications are of elementary significance to Federal Reserve. Members within the first and second installments of this convention mentioned the completely different roles the greenback performs within the international financial system and the way the primacy of the greenback advantages not solely the USA but in addition the remainder of the world. U.S. households, as an example, profit from decrease transaction and borrowing prices, whereas U.S. companies and the U.S. authorities profit from deep monetary markets, together with a big pool of collectors and traders. Households and companies in overseas economies additionally profit from entry to this broad pool of lenders and traders, which reduces their financing prices and fosters international financial development.
Regardless of all the advantages the greenback offers the USA and international economies and the efforts to mitigate a few of the monetary stability challenges posed by its dominant position, there has, for a while, been commentary predicting that the greenback is destined for demise—doubtlessly an imminent demise. Such predictions haven’t materialized.2 The greenback stays, by far, essentially the most extensively used foreign money throughout a wide range of metrics, together with as a retailer of worth and a medium of change. Nevertheless, the position of the USA on the earth financial system is altering, and finance is all the time altering, so I believe it’s important for policymakers to frequently take into account if and why the greenback’s position would possibly change as nicely.
This convention is an efficient venue to debate a few of the challenges and alternatives for the worldwide use of the greenback on this ever-changing monetary panorama. As an illustration, a type of challenges is the complicated relationship between the greenback and geoeconomics, generally outlined because the interaction between financial and geopolitical instruments and targets. Rising geopolitical tensions, sanctions towards Russia, China’s efforts to bolster utilization of the renminbi, and financial fragmentation all can have an effect on the worldwide use of the greenback, most visibly as a retailer of worth and mirrored in its use in official overseas change reserves.
These identical components can even have an effect on the greenback’s position as a medium of change, similar to in its use in commerce invoicing, international banking, worldwide debt issuance, and overseas change transactions. These subjects might be addressed by two of our presenters at present. Linda Goldberg will current a paper addressing the results of geoeconomic tensions, specializing in the greenback’s use in official overseas change reserves. Linda and her coauthors discover that monetary sanctions and geopolitical distance from the USA are related to decrease greenback shares in overseas change reserves. Trying extra broadly, Ryan Chahrour will current work exploring the potential results of escalating battle and protectionism on the greenback’s dominance in reference to efforts to advertise using different currencies such because the renminbi. He and his coauthors discover that each sanctions and insurance policies that immediately help the worldwide position of the renminbi could scale back the prominence of the greenback if these sanctions and insurance policies are long-lasting.
The shifting cross-border funds panorama—together with the speedy development of digital currencies—might additionally pose challenges to the dominant position of the U.S. greenback. Angelo Ranaldo will present an outline of elements of that funds panorama, specializing in the world’s largest multicurrency money settlement system for overseas change, the Steady Linked Settlement fee system, and its position in facilitating cross-border funds by decreasing settlement threat. Within the panel moderated by Michelle Neal this afternoon, the panelists will take a broader take a look at the present panorama of cross-border fee techniques and the way new applied sciences similar to central financial institution digital currencies and sooner transactions might doubtlessly have an effect on U.S. greenback utilization and international capital flows. Stijn Claessens, in his keynote handle, will increase on comparable themes and pose questions that also have to be explored by researchers engaged on this subject.
Whereas recognizing that the U.S. greenback could face some challenges to its dominance sooner or later, we, as policymakers, are additionally attuned to the potential monetary stability challenges that the present broad use of the U.S. greenback can pose for monetary techniques in the USA and the remainder of the world. For instance, previous experiences present that overseas shocks can transmit to the USA when traders and governments search a secure haven to guard the worth of their property in durations of stress. Such a “flight to the greenback” implies that {dollars} are in particularly excessive demand in funding markets across the globe throughout these episodes, as we noticed throughout the World Monetary Disaster and the monetary turmoil on the outset of the COVID-19 pandemic. The Federal Reserve helps using {dollars} internationally by our liquidity amenities, together with the central financial institution liquidity swap traces, which offer overseas central banks with the capability to ship U.S. greenback funding to establishments of their jurisdictions. Scott Davis and Moritz Lenel will focus on the effectiveness of those swap traces of their respective papers. Utilizing completely different approaches, they discover that the provision of U.S. {dollars} by central financial institution swap traces mitigates the appreciation of the greenback with respect to different currencies in episodes of stress and reduces deviations from lined rate of interest parity. This proof means that the central financial institution swap traces not solely make sure that credit score continues to stream to U.S. households and companies, but in addition that these swap traces have results that improve monetary stability and, thus, the standing of the U.S. greenback because the dominant international foreign money.
In closing, I wish to reiterate the significance of understanding how adjustments within the international panorama could have an effect on the central position of the greenback within the international financial system and monetary system. I additionally wish to thanks for taking the time to affix the dialogue over the subsequent two days. This convention brings collectively world-class researchers, practitioners, and policymakers devoted to understanding and addressing these essential subjects.
1. The views expressed listed below are my very own and usually are not essentially these of my colleagues on the Federal Reserve Board or the Federal Open Market Committee. Return to textual content
2. See Christopher J. Waller, “The Greenback’s Worldwide Function,” speech delivered at “Local weather, Foreign money, and Central Banking,” a convention sponsored by the World Interdependence Middle and the College of the Bahamas, Nassau, Bahamas, February 15, 2024. Return to textual content
