Dollar Erosion: Understanding the Loss of Reserve Currency Status / Zhengyang Jiang, Arvind Krishnamurthy, Hanno Lustig, Robert J. Richmond.

Format:

Book

Author/Creator:

Jiang, Zhengyang.

Contributor:

Krishnamurthy, Arvind.

Lustig, Hanno.

Richmond, Robert J.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w35328.

NBER working paper series no. w35328

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2026.

Summary:

We quantify the impact of the loss of reserve currency status in goods and asset markets. In goods markets, the loss of seigniorage (1% of GDP per annum) makes American households spend less, mostly on U.S. goods, leaving an excess supply of U.S. goods to be cleared by a real depreciation of the dollar. The larger the home bias and the lower the elasticity of substitution between home and foreign goods, the larger the required depreciation. Standard parameters imply an 8.8% real depreciation of the dollar. In asset markets, about 50% of GDP in dollar bonds must be reabsorbed by home investors, raising the U.S. real interest rate. Standard parameters imply a 90 basis points rise, leading to an aggregate wealth loss of roughly one year of U.S. GDP.

Notes:

June 2026.

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