Matteo Maggiori, Brent Neiman, Jesse Schreger, 18 June 2018

Currency is a far more important factor for cross-border capital flows than is typically assumed. This column demonstrates that investors exhibit a strong bias toward securities denominated in their home currency even when investing in bonds issued by developed countries, implying that the majority of foreign firms that do not issue foreign currency bonds typically do not borrow from abroad directly. A key exception to this pattern is the US, as the global taste for dollars enables smaller firms that issue only dollar-denominated bonds to access foreign capital. The benefit that the dollar’s status offers the US appears to have increased since the Global Crisis at the expense of the euro.

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