Author: Eren, Egemen Malamud Semyon
Title: Dominant Currency Debt Cord-id: v0cvwma8 Document date: 2021_1_1
ID: v0cvwma8
Snippet: 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 deca
Document: 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.
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