Modern monetary theory argues that all governments that issue their own currency have the same policy space. The present paper argues that this position is wrong. For it to be valid, abstraction must be made from the gravitational force of the US dollar that stems from its backing mass of...

This paper analyzes reserve adequacy measurement in Kosovo, where euro serves as the legal tender. The study adapts the IMF's Assessing Reserve Adequacy framework to Kosovo's unique monetary context, focusing on precautionary motives for holding reserves. The analysis reveals limited readily...

The dominance of the U.S. dollar in the global financial system remains the key pillar of international trade and monetary stability but faces growing challenges in a rapidly changing world. Historically rooted in the Bretton Woods system and the establishment of the petrodollar system, the...

Currency substitution defined as the use of foreign currency in the domestic economy is a relatively common phenomenon in developing countries. While mainstream economics has analyzed it in some detail, the same is not the case in heterodox economics. This paper proposes an analytical approach...

We use a theoretical model to set up the conditions for a country to attain monetary stability by allowing for two freely tradable currencies to circulate in parallel. For this parallel system to function properly, confidence in the good behavior of the monetary authorities in charge of the two...

This article examines the global economic shift away from US dollar dominance, focusing on the rise of the Chinese yuan and de-dollarization efforts, particularly by Russia and BRICS nations (Brazil, Russia, India, China, and South Africa). The study explores the dollar's dominance since World...

The share of U.S. dollar assets in the official foreign exchange reserve portfolios of central banks is sometimes taken as an indicator of dollar status. We show that the observed decline in the aggregate share of U.S. dollar assets does not stem from a systematic shift in currency preferences...

Several commentaries are written about de-dollarization. We analyze the factors which are contributing to de-dollarization and provide an alternative assessment. On the economic front, the US economy's reduced fiscal and financial capacity can strain economic trust in the dollar. The...

This study analyzes the firm-level impacts of temporary safeguard import tariffs implemented in Ecuador from 2015 to 2017. Employing a difference-in-differences methodology, we explore the policy's effects on a unique dataset combining firm- and product-level data. We focus on the direct effects...

This paper analyzes Timor-Leste's historical economic performance and structure under dollarization. It considers several dimensions that determine the benefits and costs of the regime: (i) growth and inflation performance; (ii) business and financial cycle synchronization; (iii) adjustment to...

Macroprudential policy has gained prominence for promoting financial stability. In this paper, we assess the effectiveness of macroprudential policy in reducing credit growth over a 22-year period across 129 countries. Additionally, we investigate the interaction between macroprudential policy,...

The electoral campaign of Argentina's new president Javier Milei has revived the debate over the pros and cons of dollarization. Critics argue that dollarizing would force Argentina to import the monetary policy of the Federal Reserve, regardless of whether the Fed's policies are appropriate for...

This paper provides insights into the determinants of currency choice in cross-border bank lending, such as bilateral distance, financial and trade linkages to issuer countries of major currencies, and invoicing currency patterns. Cross-border bank lending in US dollars, and particularly in...

Traditional trust-related de-dollarization motives have gained additional impetus from the declining share of the United States in global output, recent upheaval in dollar bond markets, geopolitical tensions, and a "weaponization" of the dollar. Several institutional innovations by China and the...

The paper introduces a semi-structural Quarterly Projection Model (QPM) tailored for the Democratic Republic of the Congo (DRC), highlighting its resource richness and high degree of dollarization. We provide an overview of the model's specifications to elucidate key features of the DRC economy...

Financial dollarization is considered a source of macroeconomic instability in many emerging economies. Dollarization constrains the ability of central banks to stimulate output during economic downturns. In contrast to the conventional monetary transmission mechanism, a monetary policy...

"Illicit financial flows (IFFs) associated with commodity trade erode the tax base of resource-rich developing countries. Efforts to curb IFFs and reform taxation stumble over enhanced North-South tensions but remain crucial to helping poorer countries mobilise domestic resources for...

The US dollar has been an integral part of everyday life and political-economic order in Georgia for more than three decades. Thinking and planning in two currencies - the Georgian lari and the dollar - is common not only for local companies and the government but also for households. The dollar...

This paper investigates the effects of cost efficiency on non-performing loans (NPLs) in Zim-babwe during dollarisation. The research applies the random effects and bootstrap quantile regression models using the full dollarisation era dataset for 13 banks from 2009 to 2017. The obtained results...

The issuance of retail central bank digital currency (CBDC) involves a transfer of risk from commercial banks to the central bank. Mechanisms that limit the transfer of risk, such as an unattractive interest rate, a quantity ceiling or the non-convertibility of cash and reserves into CBDC, are...

Over the past three decades, Somalia's economic landscape has witnessed a noticeable dependence on imported goods. The exchange rate was unregulated owing to the collapse of the country's central bank. This unregulated environment has introduced significant volatility in exchange rates,...

This article explores the dynamics of international currency competition and de-dollarization, focusing on the current dominance of the US dollar and potential challenges from the Chinese renminbi and BRICS countries. It reviews recent literature on currency statecraft, the political economy of...

Contrary to some popular concerns regarding countries potentially reducing their reliance on the U.S. dollar to be threatening to U.S. dollar dominance as a global currency (often labeled “de-dollarization”), this paper presents evidence that through early 2023 even after events like the...

This paper is written by Hongyi Chen (Hong Kong Institute for Monetary and Financial Research) and Pierre Siklos (Wilfrid Laurier University and Balsillie school of International Affairs).Digitalization, spurred by the pandemic, has accelerated plans by many central banks to introduce retail...

The constitutional Dollar was a silver coin. Federal and state paper moneys were unconstitutional, and gold and copper coins were not Dollars. Consequently, notable constitutional originalists claim any Dollar not constructed from silver – including the current widely circulating paper Federal...

We analyze a recent paper that claims that dollarizing an economy in the presence of a “dollar shortage” will provoke an immediate sharp reduction in real output and welfare. We find many problems with the model that supports this conclusion: confusion about the nature of a dollar shortage...

Written for a PIIE conference on the 50th anniversary of floating exchange rates, this paper deals with possible alternatives to a unipolar dollar-based system. It considers (1) measures of international currency use; (2) potential challengers to the dollar; (3) network externalities; and (4) the...