Privilege Lost? The Rise and Fall of a Dominant Global Currency

Kai Arvai and Nuno Coimbra

No 19078, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Economic size matters for three key aspects of a dominant currency: safety, liquidity, and insurance. First, larger countries tend to be more diversified, increasing their debt capacity and safety. Secondly, the larger the share of a country in the supply of safe assets, the more liquid and attractive its bonds are. Finally, the larger a safe country’s share in the world economy, the more its bonds appreciate in downturns, providing insurance for investors. We argue that these three aspects reinforce each other and show how they erode if the dominant country grows less than the rest of the world.

Keywords: Default (search for similar items in EconPapers)
JEL-codes: E42 F02 F33 N10 (search for similar items in EconPapers)
Date: 2024-05
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Related works:
Working Paper: Privilege Lost? The Rise and Fall of a Dominant Global Currency (2025)
Working Paper: Privilege Lost? The Rise and Fall of a Dominant Global Currency (2023)
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