The Dollar in an Era of International Retrenchment / Ryan Chahrour, Rosen Valchev.

Format:

Book

Author/Creator:

Chahrour, Ryan.

Contributor:

National Bureau of Economic Research.

Valchev, Rosen.

Series:

Working Paper Series (National Bureau of Economic Research) no. w31405.

NBER working paper series no. w31405

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2023.

Summary:

Recent trends suggest the world economy may be tending towards an equilibrium with two distinct trading blocs, each internally integrated, but with significant isolation between the blocs. This paper uses a quantitative theory to explore how far this bifurcation would need to go to pose a threat to the special role of the dollar in international exchange. The theory emphasizes the joint determination of countries' portfolio choices and trading currency. We find that unilateral protectionism on the part of the US could modestly reinforce the dollar's dominant role, but that policies directly supporting the Chinese yuan's use in trade could end the dollar's continued dominance if implemented over a long-enough period. Tit-for-tat responses between just the US and China would likely leave the dollar's role essentially unchanged. If both countries coordinate protectionist policies within their trading blocs, however, a transition away from global dollar dominance becomes far more likely.

Notes:

Print version record

June 2023.