Trade Invoicing, Bank Funding, and Central Bank Reserve Holdings

Gita Gopinath and Jeremy C. Stein

AEA Papers and Proceedings, 2018, vol. 108, 542-46

Abstract: We develop a model that shows how the currency denomination of a country's imports influences the funding structure of its banking system, and in turn, the currency composition of its central bank's reserve holdings. The link between the dollar's role in bank funding and its role as a central bank reserve currency is stronger when the country's fiscal capacity is limited, and when exchange rates are volatile. In the data, there is a pronounced cross-country relationship between the fraction of imports that are dollar invoiced, and the fraction of central-bank foreign-exchange reserves that are held in dollars.

JEL-codes: E44 E58 F14 F31 G21 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/pandp.20181065
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Citations: View citations in EconPapers (41)

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