Central Banks as Dollar Lenders of Last Resort: Implications for Regulation and Reserve Holdings

Mitali Das, Gita Gopinath, Helene Hall, Taehoon Kim and Jeremy C. Stein

American Economic Journal: Macroeconomics, 2026, vol. 18, issue 3, 1-41

Abstract: We explore how foreign central banks behave when firms engage in currency mismatch, borrowing heavily in dollars. A central bank can deal with risky private-sector mismatch in two ways: (i) with financial regulation or (ii) by accumulating reserves to better serve as a dollar lender of last resort. We highlight a novel externality:Individual central banks may over accumulate dollar reserves, as this exacerbates a global scarcity of dollar-denominated assets, lowering dollar interest rates and encouraging firms to further increase their currency mismatch. Relative to the decentralized outcome, a global planner may prefer tighter financial regulation and reduced holdings of dollar reserves.

JEL-codes: E43 E44 E58 F31 F41 G21 G28 (search for similar items in EconPapers)
Date: 2026
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DOI: 10.1257/mac.20240107

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