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on International Finance |
| By: | Drechsel, Thomas; McLeay, Michael; Tenreyro, Silvana; Turri, Enrico |
| Abstract: | We show that the optimal monetary and exchange rate frameworks depend critically on the economy’s commodity exposure. We develop a flexible but tractable model economy with commodity exports and imports, in which international financial conditions depend on the commodity cycle. Stabilizing domestic prices is optimal for commodity exporters, in line with standard open-economy policy prescriptions. But when economies import commodities as production inputs, optimal policy largely ‘looks through’ their direct and indirect effects on domestic prices. In emerging economies, where financial conditions are closely related to commodity cycles, trade-offs are starker and limited credibility may make implementing optimal policy challenging. |
| Keywords: | monetary policy;exchange rates;inflation targeting;commodity prices;small open economy |
| JEL: | E31 E52 E58 F41 Q30 |
| Date: | 2026–09–07 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:140771 |
| By: | Stefan Avdjiev; Kristin Forbes; Tsvetelina Nenova; Marjorie Santos |
| Keywords: | global imbalances, net international investment position, spillovers, current account, trade deficit, trade surplus, exorbitant privilege, international debt, dollar depreciation |
| JEL: | F1 F3 F4 G15 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1379 |
| By: | Arvind Krishnamurthy; Miguel Chumbo |
| Abstract: | We measure the convenience yield on dollar safe assets over the last 5 years to answer this question. We find that within the set of U.S. dollar assets, safe asset convenience yields are about the same in 2025 as they were in 2019, and these levels are expected to persist for the next decade. Across the globe, the richness of U.S. dollar safe assets, particularly Treasurys, compared to the safe assets of other currencies have fallen considerably. There is also evidence that the U.S. dollar repo is currently the highest convenience dollar safe asset. In short, our answer is, no for domestic liquidity purposes, and yes for global liquidity purposes. |
| JEL: | G12 G15 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35742 |
| By: | Enisse Kharroubi |
| Abstract: | The conflict in the Middle East and the subsequent disruption of traffic in the Strait of Hormuz have triggered an unprecedented shock to the global economy. Using historical data from the IMF/University of Oxford Portwatch database on maritime traffic, this paper empirically examines some of the potential economic and financial consequences of disruptions to traffic in the Strait of Hormuz. The analysis highlights the role of this chokepoint as a global supply indicator, with traffic disruptions acting as a global stagflation-inducing force. While commodity prices — especially energy prices — tend to increase after an adverse shock to traffic in the Strait of Hormuz, such negative shocks are systematically followed by a combination of lower global output and higher global consumer prices. In addition, negative shocks to traffic in the Strait of Hormuz tighten financial conditions, with spreads on both advanced economies (AEs) corporate bonds and emerging market economies (EMEs) sovereign bonds widening significantly. These findings underscore the Strait of Hormuz’s critical role in the global economy and highlight avenues for future research on chokepoint shocks. |
| Keywords: | chokepoints, Strait of Hormuz, maritime traffic, global supply shocks, financial conditions |
| JEL: | E23 E24 E31 E32 E52 J64 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1378 |
| By: | Itskhoki, Oleg; Mukhin, Dmitry |
| Abstract: | Tariffs, trade wars, and financial sanctions have become a common feature of the global economy. In response, many governments consider departing from the Washington Consensus and adding unconventional tools such as foreign exchange interventions, capital controls, and financial repression. This paper asks when, and how, financial repression can be used in the currency market, and how it compares with foreign exchange (FX) interventions and conventional monetary and fiscal policy. We show that although the use of financial repression is welfare-reducing in response to international shocks, even when FX interventions are fully constrained, it can be effectively used for redistributive and fiscal reasons. Greater international financial isolation makes financial repression more potent in extracting fiscal surplus from the private sector. |
| Keywords: | currency market;financial repression;financial sanctions;official reserves |
| JEL: | F3 G3 L81 |
| Date: | 2026–08–31 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:140876 |
| By: | Burak Deniz; Tarik Alperen Er; Ibrahim Yarba |
| Abstract: | This study investigates how banks' foreign exchange (FX) position affects their lending behavior following an exchange rate shock, and the resulting effects on firms' real economic activities. Utilizing bank-firm level credit registry data along with financial statements of all incorporated firms, we show that banks with higher exposure to FX risk cut their lending and shorten their loan maturities compared to banks with lower exposure. Our further analyses indicate that banks transmit the shock they experience not only to the firms with FX risk but also to the firms with no direct FX risk. Moreover, we find that firms could not avoid the lending contraction by switching to low-exposure banks. This is evident only for SMEs, and not for large firms. We also document real effects, stemming from the banks’ role in propagation of FX shock. Consistent with the contraction in bank lending, SMEs with high-exposure banks exhibited a comparatively negative performance in their net sales, employment, and investment. Our findings underscore the importance of macroprudential policies that monitor and reduce banks’ currency mismatches, thereby mitigating the adverse effects of currency shocks on the real economy. They also highlight the importance of incorporating balance-sheet effects stemming from foreign exchange risk into the conduct of monetary policy. |
| Keywords: | Bank lending, Foreign exchange risks, Exchange rate shock, SME |
| JEL: | E44 F31 G21 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:tcb:wpaper:2617 |
| By: | Madiha Riaz (Pakistan Institute of Development Economics) |
| Abstract: | This knowledge brief examines the ongoing structural shift in the global monetary and energy-pricing system from the long-standing U.S. dollar-based petrodollar regime toward the emerging Petroyuan framework. Drawing on historical analysis, theoretical insights, and empirical data from 1970 to 2026, it explores how oil pricing shapes global liquidity, inflation, exchange rates, capital flows, and financial stability. The petrodollar system historically reinforced U.S. dollar dominance and enabled the large-scale recycling of oil revenues into global financial markets. Recent structural changes - geopolitical fragmentation, China's rise, Western sanctions, and diversification of energy trade - have begun to erode these relationships. The emerging Petroyuan introduces a more multipolar monetary landscape. For oil-importing economies such as Pakistan, currency diversification may offer marginal but meaningful benefits, yet external vulnerabilities remain binding constraints. Pakistan's structural deficit with China - $9.5 billion in imports versus $1.2 billion in exports in H1 FY2025-26 - combined with $29-30 billion in Chinese bilateral debt, creates a paradoxical yet compelling case for a calibrated yuan-based settlement that could reduce dollar dependence without deepening single-counterparty risk. The brief concludes that the transition will be gradual and potentially destabilizing without coordinated domestic and multilateral policy responses. |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:pid:kbrief:2026:152 |
| By: | Michael D. Bordo; Carolyn Wilkins |
| Abstract: | This paper uses the history of private money to assess the conditions under which stablecoins could function safely at scale and what their growth may imply for U.S. monetary power. Historical systems of private money in the United Kingdom, the United States, Canada, Sweden, and Switzerland show that par circulation depended on institutional arrangements rather than payment technology. Drawing on the monetary history of private money, convertibility, and international currencies, the paper identifies five foundations for scalable private money: credible convertibility, high-quality and transparent backing, a uniform regulatory perimeter, par clearing infrastructure, and credible crisis management and loss allocation. Stablecoins may improve settlement speed, programmability, and cross-border access, but they do not remove these requirements. Applying this framework to contemporary stablecoins and the GENIUS Act, the paper finds that the Act addresses several of these foundations more fully than others, with crisis management and cross-border coordination less fully developed. Dollar stablecoins could extend the reach of dollar settlement, but historical experience reviewed here suggests that whether this strengthens the dollar system depends both on the institutional framework supporting stablecoins and on the deeper foundations of U.S. monetary dominance: confidence in U.S. institutions, fiscal capacity, monetary credibility, and the rule of law. |
| JEL: | E42 E44 G15 N20 N40 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35768 |
| By: | Theodore Panagiotidis (University of Macedonia, Greece); Zoi Tzitzimika (University of Macedonia, Greece); Konstantinos Kakouris (University of Macedonia, Greece) |
| Abstract: | We examine how the Russian invasion of Ukraine affected equity prices in the global aluminum industry. Using an event-study framework applied to daily stock returns of ten major aluminum producers across countries, we document heterogeneous market responses. European firms exhibit negative cumulative average abnormal returns (CAARs), with losses of up to 6.5%, whereas non-European producers record positive CAARs of up to 10.5% in the immediate post-event period, suggesting that some firms benefited from shifting supply conditions. Our findings demonstrate that geopolitical shocks are priced unevenly within commodity-intensive industries, with proximity as a key determinant of market reactions. |
| Keywords: | Russian-Ukrainian war; geopolitical events; aluminum stock returns; event study methodology; multi-country sample; abnormal returns. |
| Date: | 2026–12 |
| URL: | https://d.repec.org/n?u=RePEc:mcd:mcddps:2026_12 |
| By: | Alessandro Moro (Bank of Italy); Andrea Zaghini (Bank of Italy) |
| Abstract: | Donald Trump's re-election and the United States' renewed withdrawal from the Paris Agreement marked a deterioration in the US green bond market: the share of green bonds in the US market dropped from 1.7 per cent in the pre-Trump period to just 0.6 per cent thereafter. Using a difference-in-differences approach, we estimate a decline of 4.4-6.0 percentage points in the probability of issuing green bonds and a reduction of 20-28 million USD in monthly green bond issuance per issuer. At the same time, the greenium - the typically negative yield spread between green and conventional bonds with similar characteristics - turned positive. This shift in the greenium, coupled with a decline in issuance, points to weakened investor demand for green assets, likely driven by both reduced environmental concerns and less optimistic outlook for environmentally conscious firms. The impact of Trump's re-election and policies on green bonds was stronger in the US than in other markets, highlighting diverging trajectories in sustainable finance at the international level. |
| Keywords: | sustainable finance, green bonds, greenium, political shocks, Trump's presidency |
| JEL: | G11 G12 Q51 Q54 Q56 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:bdi:wptemi:td_1538_26 |