Dominant currency debt

Egemen Eren and Semyon Malamud

Journal of Financial Economics, 2022, vol. 144, issue 2, 571-589

Abstract: We propose a “debt view” to explain the dominant international role of the dollar. Within a simple capital-structure model with debt-currency choice, we show that the “dominant currency” is the one that (1) depreciates in global downturns over horizons of typical debt maturity and (2) has the steepest nominal yield curve. Empirically, we show the dollar fits this description better than other major currencies. The debt view can explain dollar-debt-issuance patterns over the past two decades. It also offers insights into the future of the dominance of the dollar in the aftermath of the COVID-19 crisis.

Keywords: Dollar debt; Dominant currency; Exchange rates; Inflation; Monetary policy (search for similar items in EconPapers)
JEL-codes: E44 E52 F33 F34 G15 G32 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:144:y:2022:i:2:p:571-589

DOI: 10.1016/j.jfineco.2021.06.023

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