An analysis of transnational transfer of wealth through cross-border financial transactions

Ahmed Mehedi Nizam

SN Business & Economics, 2023, vol. 3, issue 1, 1-31

Abstract: Abstract Cross-border financial transactions in fiat currencies facilitate transfer of wealth in real terms from the exporting to the importing country. The importing country gets the ownership of real assets and/or consumable goods/services, while the exporting one obtains some hard currencies with no intrinsic value, which serve the purpose of store of value and also represent purchasing power in the international market. Apart from export and import, all other transactions in current and capital account also add to the process of such transfer of wealth as mentioned above. Considering all such cross-border transactions along with the role of a country’s currency as a global reserve currency, here we algebraically quantify the extent of net non-monetary wealth that a particular country has transferred so far to the rest of the world in exchange of some fiat hard currencies. Then we use the algebraic formulation stated above to empirically calculate the amount of net real wealth transferred to (from) some major economies from (to) the rest of the world stemming from cross-border financial transactions and analyze their long term and short term dynamics using Vector Error Correction Model (VECM). Wealth as defined above along with its long term trends should allow countries rethink their hoarding pattern of foreign currencies as well as their trading behavior with the rest of the world.

Keywords: Cross border trade; Wealth redistribution; Hard currencies (search for similar items in EconPapers)
JEL-codes: E01 E21 F14 F41 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s43546-022-00410-3

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