Saleem Bahaj, Ricardo Reis, 21 September 2020

Only a handful of currencies are regularly used for cross-border payments, with the US dollar dominating almost any measure of international use. This column analyses the preconditions for a currency to achieve international status and asks whether government policies can assist in this process. Theoretically, it argues that international status depends on several thresholds, including a currency’s volatility, the size of the issuing country, and the borrowing costs involved. Empirically, it shows that swap line agreements signed by the People’s Bank of China significantly increase the likelihood of renminbi usage in the following months, signalling the effectiveness of this policy.

Saleem Bahaj, Ricardo Reis, 25 September 2018

Swap lines between advanced economy central banks are a new and important part of the global financial architecture. This column analyses their role, from the perspective of central banks, in the transmission of monetary policy, and in the macroeconomic effects of policy. Results show that swap lines serve as liquidity facilities, that they put a ceiling on deviations from covered interest parity, and that they incentivise cross-border gross capital flows. 

Joshua Aizenman, Yothin Jinjarak, Donghyun Park, 03 April 2010

The global crisis has been associated with an unprecedented rise of swap agreements between central banks of larger economies and their counterparts in smaller economies. This column explores whether such swap lines can reduce the need for reserve accumulation. The evidence suggests that there is only a limited scope for swaps to substitute for foreign-exchange reserves.

CEPR Policy Research