This Background Paper on the United States examines the effect of fiscal deficit reduction in the context of the IMF’s multicountry simulation model, on the current account and the real exchange rate. The simulations suggest that, other things being equal, fiscal consolidation will tend to cause the real exchange rate to depreciate in the short term. The paper also estimates a long-term relationship between the real effective exchange rate for the U.S. dollar and a number of variables.

Abstract

This Background Paper on the United States examines the effect of fiscal deficit reduction in the context of the IMF’s multicountry simulation model, on the current account and the real exchange rate. The simulations suggest that, other things being equal, fiscal consolidation will tend to cause the real exchange rate to depreciate in the short term. The paper also estimates a long-term relationship between the real effective exchange rate for the U.S. dollar and a number of variables.

IV. Trends in the International Use of the U.S. Dollar 1/

1. Introduction

Concerns about the status of the dollar as an international currency have surfaced periodically since the Inception of the Bretton Woods system, which established a dominant role for the U.S. dollar in the international financial system. In the early 1960s, Robert Triffin (1960) pointed out the growing inconsistency between the expanding use of the dollar as a convertible international reserve asset and the fixed stock of gold reserves of the United States. In the second half of the 1970s, many believed- that a decline in the international role of the dollar would be an inevitable result of a diminishing international role of the United States, the collapse of the Bretton Woods system, and the eroding internal value of the dollar. The fall in its exchange value was identified as a symptom of the currency’s declining role.

In a series of papers in the early 1980s, Kenen pointed out that the theory was running ahead of the data: many studies were trying to explain the supposedly dwindling role of the dollar, but few actually were measuring it. 2/ Kenen concluded that despite a decline in its status as a reserve currency and a drop in its use in international trade, the dollar was still by far the dominant currency in the international financial system.

Recently, concerns about a decline in the role of the dollar have resurfaced, owing in part to the dollar’s weakness against the other main international currencies and reports that central banks are increasingly diversifying their reserve holdings. A number of studies have reported recently on the trends in the international use of currencies other than the dollar. For example, Tavlas (1990, 1992) documents the increasing role of the deutsche mark and the Japanese yen in the international financial system. Of course, an expanded use of other currencies implies a declining role for the dollar, but there has been no recent study that examines the trends for the dollar directly. This chapter addresses this issue. It defines and quantifies various measures of the dollar’s role in the international financial system, and briefly points out the factors that promote the international use of a currency.

The data show that the dollar’s status as the world’s main international currency does not seem to have diminished significantly. While the dollar has lost its role as the sole vehicle currency in foreign exchange markets and its share in the Eurocurrency market continues to decline, according to most other measures the decline in its importance has been reversed in recent years. The most notable examples are the shares of the dollar in international reserves, in new international syndicated bank credits, and in outstanding loans to developing countries.

Moreover, the use of U.S. dollar notes for transaction and hoarding purposes abroad has expanded, as evidenced by large and increasing exports of U.S. currency in recent years. It is now estimated that close to $100 billion of U.S. currency has been exported since 1990 alone, adding to a stock held abroad that is now estimated to be between 50 and 70 percent of the total U.S. currency in circulation. 1/

2. The international uses of a currency

The international uses of a national currency can be classified much in the same way as its domestic uses: as a unit of account, a means of payment, and a store of value. Following Kenen (1983), the frame of reference outlined in Table IV-1 is adopted here.

Table IV-1.

United States: The International Use of the Dollar

article image
Source: Kenen (1983).

The dollar is used internationally in the three main functions of money, both privately and by governments. As a unit of account, it is used to define exchange parities, to invoice international trade, and to quote prices in international commodity markets, both in the United States and abroad. As a means of payment, it is used as a vehicle currency in foreign exchange markets, both by private entities and by governments in exchange-market intervention operations. It is also used in cash transactions in a number of countries, mainly in South America and Eastern Europe. As a store of value, its most obvious use is that of reserve asset held by central banks. It is also widely used, however, as currency of denomination for loans, bonds and deposits, and as a stable-value asset in high-inflation economies.

Three factors appear to be important for determining whether a currency takes on a reserve currency status.

First, there should be confidence in the value of the currency. This is particularly important for the role of a currency as a store of value and is one of the main reasons for the use of U.S. currency in countries with high and variable rates of inflation. A currency’s stable external value is promoted by political stability and sound economic policies in the issuing country. Long track records of low inflation and political stability have contributed to the growing international use of the Swiss franc, the German mark, and the Japanese yen, for example. 2/

Second, a country’s financial markets should be well-developed. It is important that they be broad--with a large assortment of financial services--as well as deep--with well-developed secondary markets--and substantially free of controls. This lowers transaction costs and helps promote the position of a country’s financial center as a banking center to the world.

Third, the currency should be in widespread use. An international currency will be favored simply because many others are using it: widespread use of a currency lowers transactions costs and instills confidence. The importance of widespread use introduces a certain “path dependency” in the choice of vehicle currency. Once a currency gains the status of international currency, it will tend to have an advantage over others. For example, the pound sterling retained its status as an international currency, long after the decline of the United Kingdom’s role as the major economic and financial world power, by virtue of its longstanding and widespread use. Only when confidence in its value was tarnished by recurring exchange market crises and sustained depreciation did sterling lose its importance.

All three of these factors were important in establishing the dollar as the main international currency after World War II. First, it was sanctioned as the main reserve currency in the Bretton Woods system, which gave it an instant platform for widespread international use. Second, the United States was the largest economy in the world, as well as the largest trading nation. And third, perhaps most importantly, the international community was confident that the macroeconomic policies of the United States would preserve the internal and external value of its currency.

In many respects the dollar has lost ground in these areas, especially against the deutsche mark and the yen. The United States is still the largest exporter in the world, but it is followed closely now by Germany and Japan. Even though the United States’ inflation performance has improved, U.S. inflation today remains higher than that of Germany and Japan. In addition, the United States has switched from a net creditor position to a net debtor position, with sizable fiscal and current account deficits. In the exchange markets, the dollar has lost 62 percent of its value against the deutsche mark and 76 percent against the yen since 1970.

3. Trends in the use of the dollar as an international unit of account

There are limited data available on the currency denomination of trade invoices. Tavlas (1990) cites two studies on invoicing practices in major countries. 1/ Their data, presented in Table IV-2, show a tendency for the use of the dollar to decline from 1980 to 1987, in favor of the other major currencies. However, it is difficult to draw conclusions on the basis of only two years of data.

Table IV-2.

United States: Currency Denomination of Trade Invoicing in France, Germany, Italy, Japan, the United Kingdom, the United States, and OPEC

(In percent)

article image
Sources: Tavlas (1990); and Fund staff estimates.

Table IV-3 presents data on currency pegs. The early 1980s saw a tendency for pegs against the dollar to be abandoned in favor of pegs vis-à-vis a basket of currencies. Since the mid-1980s, however, the composite baskets have lost some of their appeal, and their number is back at where it stood in the late 1970s. The number of dollar pegs continued to decline in the late 1980s, but it has stabilized since. The dollar remains the most popular currency to use for a peg, while the number of currencies pegged to the SDR has declined sharply. These trends, however, may simply reflect a shift toward more flexible exchange rate arrangements in general.

Table IV-3.

United States: Exchange Rate Arrangements of Fund Members 1/

article image
Source: IMF International Financial Statistics (various Issues).

4. Trends in the use of the dollar as an international medium of exchange

A currency is said to be a vehicle currency in exchange markets if it is used as intermediary currency in a trade between two other currencies. For example, a trader in London wanting to buy Dutch guilders with Belgian francs might first sell the francs for dollars and then use the dollars to buy guilders. These trades occur when the sum of the bid-ask spreads in the dollar markets for both currencies is smaller than the spread in the guilder-franc market. This is frequently the case for the smaller currencies, as wide bid-ask spreads are a characteristic of illiquid markets.

Charts IV-1 and IV-2 show that in the two major currency trading centers in the world, New York and London, the role of the dollar as a vehicle currency has begun to decline quite sharply. Traditionally, almost all cross-currency trades used the dollar as a vehicle currency: for example, in 1986 only 3 percent of all currency trades in London did not involve the dollar. This percentage has increased in recent years, however, to 21 percent in 1992, reflecting a clear trend toward direct cross-currency trades. This is most likely the result of more integrated international capital markets, a higher volume of cross-border capital flows, and a deepening of the cross-currency exchange markets, all of which tend to lower bid-ask spreads. Chart IV-2 shows that even in New York the percentage of trades not involving the dollar has risen from 4 percent in 1989 to 11 percent in 1992. 1/

CHART IV-1
CHART IV-1

UNITED STATES CURRENCY COMPOSITION OF FOREIGN EXCHANGE TRADING IN LONDON

Citation: IMF Staff Country Reports 1995, 094; 10.5089/9781451839470.002.A004

Source: BIS.
CHART IV-2
CHART IV-2

UNITED STATES CURRENCY COMPOSITION OF FOREIGN EXCHANGE TRADING IN NEW YORK

Citation: IMF Staff Country Reports 1995, 094; 10.5089/9781451839470.002.A004

Source: BIS.

Just as the dollar is used often as vehicle currency in private exchange-market transactions, monetary authorities might prefer to use the dollar in their operations in the exchange markets as well. In particular, because of the greater depth of the dollar exchange market, and because a high proportion of the international reserves of most countries is held in dollars, central banks often have used the dollar as intervention currency, even to defend exchange rates against other currencies.

As an example, Table IV-4 gives the currency distribution of foreign exchange intervention in the first decade of the EMS. In the early years of the system, the dollar was clearly favored, even though most intervention was aimed at defending parities of the European currencies vis-à-vis the deutsche mark. In the second half of the 1980s intervention using the deutsche mark overtook dollar intervention, suggesting that the official use of the dollar as a vehicle currency in exchange markets also declined.

Table IV-4.

United States: Currency Distribution of Foreign Exchange Intervention in the European Monetary System

(In percent of total intervention)

article image
Source: Tavlas (1990), Table 14.

5. Trends in the use of the dollar as an International store of value

Table IV-5 and Chart IV-3 give data on the currency distribution of Eurocurrency deposits. The top panel reports the shares of the major currencies calculated at current exchange rates. The dollar’s share has been on a downward trend since the mid-1980s, from a high of 77 percent in 1984 to a low of 47 percent in 1994. The relative decline of the dollar has been matched by a significant increase in the shares of most of the other major international currencies. The increase in the share of “other” currencies, including the share the Bank of International Settlements (BIS) reports as “unallocated” has been particularly strong. Data shown in the lower panel of Table IV-6 and the dashed lines in Chart IV-3 give the shares of the various currencies using constant end-1994 exchange rates, thus eliminating the effect of the large changes in many of the cross currency rates over the past decade and a half. On the basis of these data the decline in the dollar share since 1985 is smaller, and the shares of the deutsche mark and the yen have been virtually constant since that time.

Table IV-5.

United States: Currency Composition of Eurocurrency Deposits 1/

(In percent)

article image
Sources: Bank of International Settlements (BIS); International Banking and Financial Market Developments; International Financial Statistics (IFS), (various issues); end Fund staff estimates.

Data refer to liabilities side of “Currency Breakdown of Reporting Banks Cross-Border Positions” in foreign currencies aa reported by the BIS.

Data adjusted using end-of-year exchange rates against the dollar from IFS.

Table IV-6.

United States: Currency Composition of International Syndicated Bank Credits

(In percent)

article image
Sources: Organization for Economic Cooperation and Development (OECD) Financial Market Trends (various issues); International Financial Statistics (IFS) (various issues); and Fund staff estimates.

Data adapted from “Currency Composition of External Bank Loans” reported by the OECD.

Data have been adjusted using and-of-year exchange rates against the dollar from International Finance Statistics (IFS).

CHART IV-3
CHART IV-3

UNITED STATES CURRENCY DISTRIBUTION OF EUROCURRENCY DEPOSITS

(In percent)

Citation: IMF Staff Country Reports 1995, 094; 10.5089/9781451839470.002.A004

Source: BIS, International Banking and Financial Market Developments.

Table IV-6 and Chart IV-4 provide the currency distribution of International syndicated bank credits. During the first half of the 1980s the share of the yen increased sharply, from 1 percent in 1981 to over 16 percent in 1986. This was matched by a drop in the dollar share from 86 percent in 1981 to under 60 percent in 1987. Subsequently, however, the share of the yen dropped, reaching 1 percent in 1991. The sterling share rose to over 17 percent in 1987, but fell sharply thereafter. The ECU share rose to about 12 percent in 1992, but also has fallen in subsequent years. In recent years, the dollar has regained most of its former dominance, with its share back over 80 percent. The pattern of shares measured in constant exchange rates is similar.

CHART IV-4
CHART IV-4

UNITED STATES CURRENCY DISTRIBUTION OF EXTERNAL BANK LOANS

(In percent)

Citation: IMF Staff Country Reports 1995, 094; 10.5089/9781451839470.002.A004

Source: OECD Financial Market Trends.

The share of the dollar in new external bond issues has been quite stable in the past six or seven years, after a drop in the mid-1980s. Table IV-7 and Chart IV-5 show that the dollar’s share fell from around 60 percent in the early 1980s to between 30 and 40 percent at present. The lower dollar share in the past decade was not related to increased shares for the traditional international currencies such as the yen, the mark, and the Swiss franc. In fact, the combined share of these currencies was lower in 1994 than it was in 1980, especially when measured in constant exchange rates. Instead, the drop in the dollar share was related to an increase in new bond issues denominated in currencies such as Canadian dollar, French franc, Italian lira, Luxembourg franc, Australian dollar, Dutch guilder, and Spanish peseta whose share increased from 7 percent in 1980 to about 21 percent in 1994. Table IV-8 and Chart IV-6 show that a slow downward trend in the share of the dollar-denominated developing country debt since 1980 has been reversed in recent years. The share was at 44 percent in 1993, up from a low of 40 percent in 1991.

Table IV-7.

United States: Currency Composition of New Gross Issues of External Bonds

(In percent)

article image
Sources: Organization for Economic Cooperation and Development (OECD) Financial Market Trends (various issues); International Financial Statistics (various issues); and Fund staff estimates.

Data adapted from OECD Financial Market Trends.

Data adjusted using dollar exchange rates from IFS.

Table IV-8.

United States: Currency Composition of Long-Term Developing Country Debt

(In percent) 1/

article image
Source: World Bank World Debt Tables, 1994-95 and 1993-94.

Data as reported by the World Bank do not add up to 100 percent.

CHART IV-5
CHART IV-5

UNITED STATES CURRENCY DISTRIBUTION OF NET GROSS ISSUES OF EXTERNAL BONDS

(In percent)

Citation: IMF Staff Country Reports 1995, 094; 10.5089/9781451839470.002.A004

Source: OECD Financial Market Trends.
CHART IV-6
CHART IV-6

UNITED STATES CURRENCY DISTRIBUTION OF DEVELOPING COUNTRY DEBT

(In percent)

Citation: IMF Staff Country Reports 1995, 094; 10.5089/9781451839470.002.A004

Source: World Bank, World Debt Tables.

A substantial portion of the stock of U.S. currency is located abroad. In quite a number of countries, such as Liberia, Panama, Argentina, and the economies in transition, U.S. notes serve both as a medium of exchange and as a store of value. For example, Kamin and Ericsson (1993) estimate that the amount of U.S. currency in circulation in Argentina might be as high as $1,000 per capita, or $30 billion. However, estimates of the total stock and flow abroad have been hard to come by. In a recent paper, various techniques were used to estimate the flow of U.S. currency abroad, and some of this data is reproduced in Chart IV-7. 1/ Net exports of currency show a strong upward trend, reaching almost $24 billion in 1994. The authors estimate that between 50 and 70 percent of the outstanding stock of U.S. currency is held abroad, which is equivalent to between $200 and $280 billion.

CHART IV-7
CHART IV-7

UNITED STATES NET FLOW OF U.S. CURRENCY ABROAD

(In billions of dollars)

Citation: IMF Staff Country Reports 1995, 094; 10.5089/9781451839470.002.A004

Source: Porter and Judson (1995).

The most watched indicator of the international use of the dollar is perhaps its role as an international reserve currency. In recent years, fears have been voiced that a massive portfolio shift away from the dollar by the world’s central banks could lead to a dollar crisis in exchange markets. Indeed, it is sometimes suggested that one of the reasons for the steep depreciation of the dollar over the past year or so has been its declining role as a reserve asset.

IMF data on international reserve holdings can be examined to evaluate this claim, but these numbers need to be adjusted to provide an accurate picture of the trend in the currency composition of reserves. Since 1979, member countries of the European Monetary System have deposited gold and foreign currency with the European monetary authorities in exchange for balances of official ECUs. Central banks’ reports regarding international reserves since then include their holdings of ECUs directly, and no longer include the dollar balances against which these ECUs have been issued. Consequently, a substantial amount of dollar reserves has been hidden from view. To get an accurate picture, the dollar portion of ECUs needs to be added back in (Table IV-9, and Charts IV-8, IV-9, and IV-10).

Table IV-9.

United States: Currency Composition of Official Holdings of Foreign Exchange, End-of-Year 1/

article image
Source: Unpublished International Monetary Fund data.

Dollar portion of ECUs added to U.S. dollar portion.

CHART IV-8
CHART IV-8

UNITED STATES OFFICIAL HOLDINGS OF FOREIGN EXCHANGE 1/

(In billions of SDRs)

Citation: IMF Staff Country Reports 1995, 094; 10.5089/9781451839470.002.A004

Source: IMF.1/ Dollar portion of ECUs added to U.S. dollars
CHART IV-9
CHART IV-9

UNITED STATES CHANGE IN OFFICIAL HOLDINGS OF U.S. DOLLARS

(In billions of SDRs)

Citation: IMF Staff Country Reports 1995, 094; 10.5089/9781451839470.002.A004

Source: IMF.1/ Dollar portion of CCUs added to U.S. dollars.
CHART IV-10
CHART IV-10

UNITED STATES SHARE OF CURRENCIES IN OFFICIAL HOLDINGS OF FOREIGN EXCHANGE 1/

(In percent)

Citation: IMF Staff Country Reports 1995, 094; 10.5089/9781451839470.002.A004

Source: IMF.1/ Dollar portion of ECUs added to U.S. dollars.

These data suggest that the dollar remains the world’s principal reserve asset. A declining trend in its share, from a high of 71 percent in 1981 to a low of 56 percent in 1990, has since been partly reversed, with the share climbing back to 63 percent in 1994. The shares of the yen and the mark, the dollar’s main rivals, have held steady since the mid-1980s. This picture is reinforced if the data are adjusted for changes in exchange rates. The lower panel of Table IV-9 shows the shares of the various currencies using constant end-1994 exchange rates. Calculated on this basis, the “quantity” share of the dollar reached a low of 53 percent in 1985, but has since returned to the levels of the early 1980s. In contrast, the shares of the yen and the deutsche mark on this basis have declined since the mid-1980s.

Chart IV-9 shows that central banks have added to their dollar stocks in every year since 1982. In response to the continued weakness of the dollar, central banks’ purchases have increased sharply in recent years, reaching $79 billion in 1994. These additions have more than made up for the decline in the dollar share that resulted from its depreciation vis-à-vis the other major reserve currencies.

There have been news reports that central banks of several East Asian countries have recently begun to switch some of their dollar holdings to yen. 1/ This portfolio shift would not be fully captured in the data in Table IV-9 for two reasons. First, the data do not include all official reserve activity. 2/ Second, some of the dollar sales have been too recent to be captured by the end-1994 data in Table IV-9. China’s central bank, for example, reportedly has reduced its dollar share of reserves from 90 percent at the end of 1994 to 75 percent during early 1995. 3/ However, since these dollar sales have been accompanied by quite substantial intervention purchases of dollars by industrial nations, it is unclear whether they have reversed the recent increase in the dollar’s share in world-wide reserve holdings.

6. Conclusion

In a number of dimensions, the dollar’s role in the international financial system does appear to have declined: it recently has lost its monopoly position as a vehicle currency in the foreign exchange markets, and its use in international trade seems to be on a downward trend. The share of the dollar in eurocurrency deposits has also declined significantly since the mid-1980s. In most other respects the dollar has regained ground in recent years: its share in new and outstanding international syndicated bank loans is back near the levels of the early 1980s, and its share in the world’s international reserves has gone up by more than 7 percentage points since 1990. There is a question, however, to what extent this increase was prompted by central banks’ intervention to resist the depreciation of the dollar or by an increased desire to hold dollars as reserve assets.

The United States continues to benefit from the role of the dollar as a key currency. The global demand for U.S. dollar-denominated assets leads to lower U.S. interest rates than would otherwise be the case. The international use of the dollar that most benefits the United States--namely, the use of currency abroad--has been expanding in recent years. The Federal Reserve has estimated that since 1981 the United States has enjoyed a cumulative $64 billion in seigniorage revenues from the use of dollar cash abroad. 1/2/

The dollar’s role of principal international currency has not gone unchallenged, however. Confidence in the dollar has been hurt by large and persistent U.S. current account deficits and its associated weakness in the exchange markets. The deutsche mark and the yen have gained a major role in the international financial system over the past 20 years, mainly because of Germany and Japan’s better track records on inflation and currency appreciation, but also as a result of the broadening, deepening, and deregulation of their financial markets. As is occasionally pointed out, these currencies possess the right characteristics for continued expansion of their international role. 3/

References

  • Bank for International Settlements, Survey of Foreign Exchange Market Activity (Basle: Bank for International Settlements, February 1990).

    • Search Google Scholar
    • Export Citation
  • Bank for International Settlements, International Banking and Financial Market Developments, various issues.

  • Bank of England, “The Foreign Exchange Market in London,Quarterly Bulletin Vol. 32, No. 4 (London: Bank of England, November 1992), pp. 408417.

    • Search Google Scholar
    • Export Citation
  • Black, Stanley, (1989a) “Transactions Costs and Vehicle Currencies,International Monetary Fund Working Paper WP/89/96, November 1989.

    • Search Google Scholar
    • Export Citation
  • Black, Stanley, (1989b), “Seigniorage” in The New Palgrave: Money (New York: W.W. Norton, 1989)

  • Frankel, Jeffrey A., “Still the Lingua Franca: The Exaggerated Death of the Dollar,” Foreign Affairs, Vol. 74, No. 4 (July/August 1995), pp. 916.

    • Search Google Scholar
    • Export Citation
  • International Monetary Fund, International Financial Statistics, various issues.

  • Kamin, Steven B., and Neil R. Ericsson,Dollarization in Argentina,International Finance Discussion Paper, No. 460, Board of Governors of the Federal Reserve System, November 1993.

    • Search Google Scholar
    • Export Citation
  • Kenen, Peter B., “The Role of the U.S. Dollar as Unit of Account and Means of Payment in International Trade,” International Finance Section Research Memorandum, Princeton University, 1981.

    • Search Google Scholar
    • Export Citation
  • Kenen, Peter B., “The Role of the U.S. Dollar as Store of Value in International Financial Markets,” International Finance Section Research Memorandum, Princeton University, 1982a.

    • Search Google Scholar
    • Export Citation
  • Kenen, Peter B., “The Role of the U.S. Dollar in Pegging Exchange Rates,” International Finance Section Research Memorandum, Princeton University, 1982b.

    • Search Google Scholar
    • Export Citation
  • Kenen, Peter B., “The Role of the Dollar as an International Currency,” Group of Thirty Occasional Papers, No. 13 (New York: Group of Thirty, 1983).

    • Search Google Scholar
    • Export Citation
  • OECD, Financial Market Trends, various issues.

  • Page, S.A.B., “Currency Invoicing in International Trade,National Institute Economic Review, No. 85 (March 1991), pp. 6072.

  • Porter, Richard D., and Ruth A. Judson, “The Location of U.S. Currency: How Much is Abroad?” Unpublished Manuscript, Board of Governors of the Federal Reserve System, June 1995.

    • Search Google Scholar
    • Export Citation
  • Tavlas, George S.,On the International Use of Currencies: The Case of the Deutsche Mark,International Monetary Fund Working Paper WP/90/3, January 1990.

    • Search Google Scholar
    • Export Citation
  • Tavlas, George S., The Internationalization of Currencies: An Appraisal of the Japanese Yen, (Washington: IMF Occasional Paper No. 90, January 1992).

    • Search Google Scholar
    • Export Citation
  • Triffin, Robert, Gold and the Dollar Crisis: The Future of Convertibility (New Haven: Yale University Press, 1960).

  • World Bank, World Debt Tables, various issues.

1/

Prepared by S. Erik Oppers.

2/

See Kenen (1981, 1982a, 1982b, 1983).

2/

Tavlas (1990, 1992).

1/

Page (1981) and Black (1989a).

1/

No data on cross-currency trades in New York are available for 1986.

1/

See a Federal Reserve Board paper by Porter and Judson (1995).

1/

In this report, the term “country” does not in all cases refer to a territorial entity that is a state as understood by international law and practice. It also covers some territorial entities that are not states, but for which economic policies are formulated and statistical data are maintained on a separate and independent basis.

2/

Taiwan Province of China--with a $93 billion stock of international reserves, the second biggest reserve holder in the world--reportedly has reduced its holdings of dollars by about 4 percentage points in each of the last several years to about 57 percent of its total reserve holdings by the end of 1994, and by another 3 percentage points by March 1995. See Frankel (1995).

3/

See Financial Times (May 10, 1995).

2/

Black (1989b) defines seigniorage as the difference between the rate of interest and the cost of providing a currency. In other words, the U.S. Government earns seigniorage on dollar notes and coins because it gets use of those funds without having to pay interest. For example, by bringing a $10 bill in circulation the Government can sell an equal amount less in interest-bearing debt, saving a yearly flow of interest payments on $10. This suggests an alternative way to estimate the yearly flow of seigniorage from the rest of the world to the United States. This flow is equal to the interest payments that non-U.S. residents are willing to give up in return for the monetary services that their stock of dollar cash provides.

3/

See Tavlas (1990, 1992).

United States: Background Papers
Author: International Monetary Fund
  • View in gallery

    UNITED STATES CURRENCY COMPOSITION OF FOREIGN EXCHANGE TRADING IN LONDON

  • View in gallery

    UNITED STATES CURRENCY COMPOSITION OF FOREIGN EXCHANGE TRADING IN NEW YORK

  • View in gallery

    UNITED STATES CURRENCY DISTRIBUTION OF EUROCURRENCY DEPOSITS

    (In percent)

  • View in gallery

    UNITED STATES CURRENCY DISTRIBUTION OF EXTERNAL BANK LOANS

    (In percent)

  • View in gallery

    UNITED STATES CURRENCY DISTRIBUTION OF NET GROSS ISSUES OF EXTERNAL BONDS

    (In percent)

  • View in gallery

    UNITED STATES CURRENCY DISTRIBUTION OF DEVELOPING COUNTRY DEBT

    (In percent)

  • View in gallery

    UNITED STATES NET FLOW OF U.S. CURRENCY ABROAD

    (In billions of dollars)

  • View in gallery

    UNITED STATES OFFICIAL HOLDINGS OF FOREIGN EXCHANGE 1/

    (In billions of SDRs)

  • View in gallery

    UNITED STATES CHANGE IN OFFICIAL HOLDINGS OF U.S. DOLLARS

    (In billions of SDRs)

  • View in gallery

    UNITED STATES SHARE OF CURRENCIES IN OFFICIAL HOLDINGS OF FOREIGN EXCHANGE 1/

    (In percent)