Emanuele Borgonovo, Stefano Caselli, Alessandra Cillo, Donato Masciandaro, Giovanni Rabitti, 28 October 2021

With the development of new forms of money such as cryptocurrencies and central bank digital currencies, the attention paid to their role as a store of privacy is increasing. This column asks whether privacy is relevant in shaping the demand for these currencies. The results of laboratory experiments show that anonymity does indeed matters and increases the overall appeal of a medium of payment. This effect is stronger for risk-prone individuals. 

Takatoshi Ito, Satoshi Koibuchi, Kiyotaka Sato, Junko Shimizu, Taiyo Yoshimi, 23 July 2021

The currency a firm chooses to invoice in reveals lessons on the prominence of that currency in the international sphere. This column presents survey data from Japanese overseas subsidiaries, highlighting how the use of Asian currencies has been growing steadily. The authors show that among Asian local currencies, Chinese renminbi and Thai baht are the most used currencies by Japanese subsidiaries. If these countries become increasingly important destination markets for regional countries, local currencies will be used more as trade invoice currency in Asia.

Giovanni Cespa, Antonio Gargano, Steven Riddiough, Lucio Sarno, 17 June 2021

The extent that trade volume can reveal asymmetric information among foreign exchange market participants is the subject of debate among economists, as are the questions surrounding how the dispersion of information can affect currency returns. This column presents new evidence that foreign exchange volume reveals insights into both issues. The authors find that a high level of information asymmetry exists across foreign exchange market participants, and that this asymmetry is independent of currencies’ average level of liquidity, volatility and volume.

Jeffrey Frankel, 02 May 2021

Richard Cooper, Robert Mundell, and John Williamson made important contributions on a variety of topics in international economics throughout their careers, particularly in terms of how we think about currency arrangements. This column reviews the work of all three, tracing their ideas and drawing lessons for policymakers today.

Joshua Aizenman, Hiro Ito, Gurnain Kaur Pasricha, 08 April 2021

Facing acute strains in the offshore dollar funding markets during Covid-19, the Federal Reserve implemented measures to provide US dollar liquidity. This column examines how the Fed reinforced swap arrangements and established a ‘financial institutions and monetary authorities’ repo facility in response to the crisis. Closer pre-existing ties with the US helped economies access the liquidity arrangements. Further, the announcements of the liquidity expansion facilities led to appreciation of partner currencies against the dollar, as did US dollar auctions by foreign central banks. 

Gordon Liao, Tony Zhang, 01 October 2020

Institutional investors and borrowers often hedge a sizeable portion of their currency mismatches. This column examines the role that this currency hedging of foreign assets and liabilities plays in determining exchange rates. It shows that countries’ hedging demands from their external imbalances can explain forward and spot exchange rate dynamics during the COVID-induced financial turmoil in March 2020, as well as their usage of the Federal Reserve central bank liquidity swap lines.

Pilar Nogues-Marco, Alfonso Herranz-Loncán, Nektarios Aslanidis, 13 August 2020

The adoption of the euro, for all its flaws, constituted a giant step in the process of full integration between the European economies. It also reproduced at a larger scale the dynamics of monetary unification that took place during the 19thcentury. This column presents a historical study of Spain, evaluating the changes in the internal money market. The analysis suggests that transaction costs undertook a sustained decline over the 19th century. By contrast, the efficiency of the market did not improve before the 1880s, perhaps due to a shift in monetary leadership changes in national economic geography.

Rui Costa, Swati Dhingra, Stephen Machin, 01 October 2019

Some commentators argue that globalisation is systematically connected to the real-wage and productivity stagnation seen across the developed world. This column analyses the relationship between international trade and worker outcomes in the immediate aftermath of the Brexit referendum, when the value of the sterling fell massively against other nations’ currencies. It finds that the rise in import costs from the sterling depreciation hurt wages and training. This relative decline in real earnings of workers has reinforced pre-existing real-wage stagnation; UK workers have not fared well since the referendum price rise.

Takatoshi Ito, Satoshi Koibuchi, Kiyotaka Sato, Junko Shimizu, 10 June 2019

Japan exports to neither advanced nor Asian countries in yen, as would be expected. Using questionnaire data, this column shows why Japanese exporters tend to choose destination currencies in their exports to advanced countries and why the US dollar, rather than the yen, is more often used in their exports to Asia. It also presents new evidence that the share of local currency has recently increased markedly, while that of the US dollar has declined, in Japanese exports to Asia. 

Emanuele Borgonovo, Stefano Caselli, Alessandra Cillo, Donato Masciandaro, Giovanni Rabitti, 12 March 2019

Alongside liquidity and store of value, is privacy an important attribute of money? Using laboratory experiments, the column shows that privacy matters, and increases the overall appeal of money. The experiments suggest that future competition between alternative currencies will depend on how the three properties are mixed.

John D. Burger, Francis Warnock, Veronica Cacdac Warnock, 19 September 2018

A large share of Turkey’s bonds are denominated in foreign currencies, and the Turkish lira has depreciated. This recalls the currency mismatches that contributed to many crises in the 1990s. The column argues that many emerging economies like Turkey's are better able to avoid these crises thanks to improved policies, such as inflation targeting, that have helped foster local currency bond markets. Emerging markets policymakers must not backslide on this progress if they want to maintain financial stability.

Nauro Campos, Corrado Macchiarelli, 12 March 2018

The concepts of core and periphery remain ubiquitous and elusive in the European integration debate. This column documents the formation and evolution of a core and periphery in EMU, unearthing an increasingly integrated core, an entrenched periphery, and a third set of countries marked by in-and-out movements.  Using a novel measure to capture the probability of a country being classified as peripheral, it reveals that this probability positively correlates with euro membership and flexible product market regulations.

K. Kıvanç Karaman, Sevket Pamuk, Seçil Yıldırım-Karaman, 24 February 2018

There is a notable lack of long-run analyses of monetary systems and their stability. This column addresses this gap by looking at the monetary systems of major European states between 1300 and 1914. The evidence collected suggests that, despite many switches between standards and systems, fiscal capacity and political regimes ultimately shaped patterns of monetary stability. Theories of monetary stability that rely on the mechanics of monetary systems perform poorly when such a long-run perspective is taken.

Filippo di Mauro, Vlad Demian, Jan-Paul van de Kerke, 08 December 2017

It is well-established in theoretical and empirical models that an exchange rate movement affects exports, but we are far from a consensus on the size and relevance of this effect. Macro-based analyses tend to yield very low values for the elasticity of exports to the exchange rate, while micro- or sectoral-based estimations tends to be higher. This column shows that one reason for the disagreement is that macro estimations fail to incorporate the characteristics of the underlying distribution of firm productivity and its asymmetries. Doing so generates higher elasticity estimates than the macro estimations, and greater country-level diversification.

Clemens Jobst, Helmut Stix, 29 November 2017

Many societies in the developed world have been shifting away from cash towards electronic alternatives. Despite this, there has been a remarkable increase in currency holdings over the past decade. This column looks at the evolution of cash holdings over time to shed light on this apparent contradiction. While circulating currency over GDP has been declining since WWII, there have been sizable increases in recent decades which are only partially explained by low interest rates.

Glenn Hoggarth, Carsten Jung, Dennis Reinhardt, 07 July 2017

Partly as a result of the Global Crisis, assessments of capital inflows and their impact on market efficiency and technology transfer have begun to take into account their association with financial crises. This column argues that the riskiness of inflows depends on the type of lender and its currency denomination. It finds that equity flows are more stable than debt flows, non-banks more stable than banks, and local currency more stable than foreign. Macroprudential policies can support the stabilisation of inflows.

Yin-Wong Cheung, Menzie Chinn, Antonio Garcia Pascual, Yi Zhang, 27 April 2017

Previous assessments of nominal exchange rate determination have focused on a narrow set of models. Using data for six currencies, this column examines the performance of an expanded set of models at various forecast horizons. No model consistently outperforms a random walk benchmark, although the purchasing power parity model does fairly well. Overall, combinations of model, specification, and currency that work in one period will not necessarily work well in another.

Adrian Jäggi, Martin Schlegel, Attilio Zanetti, 18 January 2017

Identifying the exact triggers for safe-haven flows in not easy, nor is tracking the ways in which demand for safe havens materialises. This column uses an empirical analysis of movements of the Swiss franc and Japanese yen since 2000 to show that these safe-haven currencies reacted strongly to non-domestic macro surprises, especially during the Global Crisis, and that this is in addition to the expected reaction to general changes in the risk environment. Oddly, for European macro surprises, only German data influence safe-haven currencies.

Yin-Wong Cheung, Menzie Chinn, Xin Nong, 15 September 2016

As long as countries strive to reallocate aggregate demand in their own favour, disputes will arise regarding the degree to which currency values are 'fair'. This column argues that the Penn effect – the observation that the price level is higher in countries with higher per capita income – may not be a reliable method to discern the fair value of a currency. Different specifications and different datasets lead to different estimates of the degree of misalignment, for example for the Chinese renminbi.

Paul Bergin, Giancarlo Corsetti, 11 January 2016

Competitive devaluation is a long-standing idea in international macroeconomic theory. This column takes a step back from the current debate and assesses a different perspective on monetary and exchange rate policies. Strategic behaviour is shown to be detrimental from a global welfare perspective. Due to negative spillovers elsewhere, devaluations invite retaliation – which in turn reduces manufacturing at the global level. Monetary policy can provide a non-negligible contribution to fostering comparative advantage in high-value branded manufacturing goods by pursuing efficient macroeconomic stabilisation.



CEPR Policy Research