Exchange arrangements entering the twenty-first century: which anchor will hold?

Ethan Ilzetzki, Carmen Reinhart and Kenneth Rogoff

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This article provides a comprehensive history of anchor or reference currencies, exchange rate arrangements, and a new measure of foreign exchange restrictions for 194 countries and territories over 1946-2016. We find that the often cited post-Bretton Woods transition from fixed to flexible arrangements is overstated; regimes with limited flexibility remain in the majority. Even if central bankers' communications jargon has evolved considerably in recent decades, it is apparent that many still place a large implicit weight on the exchange rate. The U.S. dollar scores as the world's dominant anchor currency by a very large margin. By some metrics, its use is far wider today than 70 years ago. In contrast, the global role of the euro appears to have stalled. We argue that in addition to the usual safe assets story, the record accumulation of reserves since 2002 may also have to do with many countries' desire to stabilize exchange rates in an environment of markedly reduced exchange rate restrictions or, more broadly, capital controls: an important amendment to the conventional portrayal of the macroeconomic trilemma.

JEL-codes: E50 F30 F40 N20 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2019-05-01
New Economics Papers: this item is included in nep-his, nep-mon and nep-opm
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Citations: View citations in EconPapers (317)

Published in Quarterly Journal of Economics, 1, May, 2019, 134(2), pp. 599 - 646. ISSN: 0033-5533

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http://eprints.lse.ac.uk/88184/ Open access version. (application/pdf)

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Journal Article: Exchange Arrangements Entering the Twenty-First Century: Which Anchor will Hold? (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:88184

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