Trilemma revisited with dollar dominance in trade and finance

Vanessa Olakemi Dovonou ()
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Vanessa Olakemi Dovonou: University of Orleans

No 2023.05, Working Papers from International Network for Economic Research - INFER

Abstract: This paper explores the impact of the US dollar dominance on monetary and exchange rate policies in 51 advanced and developing countries from 1999 to 2021. We introduce a global exposure index to measure countries’ dependence on the US dollar. Our study reveals that the dominant currency framework creates a global monetary cycle driven by the US dollar, exposing non-U.S. economies to the U.S. monetary policy. However, we show that countries can reduce their exposure to the U.S. monetary policy by accumulating reserves and intervening in foreign exchange.

Keywords: Dominant currency; Trade invoicing; foreign currency-denominated; Trilemma. (search for similar items in EconPapers)
JEL-codes: F (search for similar items in EconPapers)
Pages: 26 pages
Date: 2023
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-ifn, nep-int, nep-mon and nep-opm
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