The ‘exorbitant privilege’ of an international-currency status: theory and evidence

Eric Meyermans

Quarterly Report on the Euro Area (QREA), 2022, vol. 21, issue 1, 43-56

Abstract: A strong international-currency status may provide the issuing country an ‘exorbitant privilege’. This privilege can take several forms, ranging from an ‘excess return’ on the country’s gross external assets over liabilities, to an almost unlimited capacity to issue internationally accepted liabilities to purchase its imports and service its foreign debt. At the same time, this ‘exorbitant privilege’ can also entail an ‘exorbitant duty’. This is because in times of global stress the issuing country is expected to supply its international currency in large amounts, and the exchange rate of its currency may appreciate as capital flows to safe havens. This section compares, for a selected group of countries and areas, including the euro area and the US, their possible ‘excess return’ on foreign assets over liabilities, as well as changes in global demand for their liquid assets in times of global stress. After a brief literature review, the empirical part highlights that the ‘excess return’ has been modest for the euro area so far, as well as for most other countries in the sample. The section then illustrates econometrically that periods of global stress have induced significant increases in the demand for liquid assets issued by the US Finally, it shows notable differences in the performances of euro-area Member States in terms of excess return.

Keywords: euro area; international currency status; US dollar; exorbitant privilege; exorbitant duty; excess return (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
https://economy-finance.ec.europa.eu/system/files/ ... 72_en_chapter_iv.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:euf:qreuro:0211-04

Access Statistics for this article

More articles in Quarterly Report on the Euro Area (QREA) from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission Contact information at EDIRC.
Bibliographic data for series maintained by ECFIN INFO ().