nep-pay New Economics Papers
on Payment Systems and Financial Technology
Issue of 2021‒09‒06
eighteen papers chosen by
Bernardo Bátiz-Lazo
Northumbria University

  1. Impact of e-money on money supply: Estimation and policy implication for Bangladesh By Nizam, Ahmed Mehedi
  2. A New Model of Digital Security Offering (DSO) in Blockchain Technology for Improving Land Registration System in Malaysia By Muhammad Najib Azali; Ainur Zaireen Zainuddin; Rohaya Abdul Jalil; Norhidayah Mohd Yunus
  3. Tilted Platforms: Rental Housing Technology and the Rise of Urban Big Data Oligopolies By Boeing, Geoff; Besbris, Max; Wachsmuth, David; Wegmann, Jake
  4. Resurgence of small eateries– The successful business model of online Food Apps in major cities of Kerala By S, Suresh Kumar; S R, Shehnaz; Salam, Shiny
  5. A Markov Chain Analysis for Capitalization Dynamics in the Cryptocurrency Market By Ballis, Antonis; Drakos, Konstantinos
  6. Estimating Demand with Multi-Homing in Two-Sided Markets By Pauline Affeldt; Elena Argentesi; Lapo Filistrucchi
  7. A quality approach to real-time smartphone and citizen-driven food market price data By SOLANO HERMOSILLA Gloria; ADEWOPO Julius; PETER Helen; BARREIRO HURLE Jesus; ARBIA Giuseppe; NARDELLI Vincenzo; GORRIN GONZALEZ Celso; MICALE Fabio; CECCARELLI Tomaso
  8. Decentralized Payment Clearing using Blockchain and Optimal Bidding By Hamed Amini; Maxim Bichuch; Zachary Feinstein
  9. Mobility on Demand (MOD) Demonstration: Valley Metro Mobility Platform Evaluation Report By Martin, Elliot; Yassine, Ziad; Cohen, Adam; Shaheen, Susan
  10. Fintechs: Chancen für die KMU-Finanzierung? By Korus, Arthur; Löher, Jonas; Nielen, Sebastian; Pasing, Philipp
  11. The online meal ordering restaurant operator perceptions of online food safety regulations: the case of Shanghai, China By Liu, Weijun; Florkowski, Wojciech J.
  12. It’s selling like hotcakes: deconstructing social media influencer marketing in long-form video content on youtube via social influence heuristics By Rohde, Paul; Mau, Gunnar
  13. An exploratory analysis of financial inclusion in Chad By Mahamat Ibrahim Ahmat Tidjani
  14. Challenges and Cooperations in the German PropTech Market - Evidence Based on Results from the PropTech Germany 2020/2021 Surveys By Verena Rock; Sarah Schlesinger; Philipp J. Liebold; Nadine Brehm
  15. Anatomy of a techno-creative community – the role of brokers, places, and events in the emergence of projection mapping in Nantes By Etienne Capron; Dominique Sagot-Duvauroux; Raphaël Suire
  16. The coercive logic of fake news By Alexander J. Stewart; Antonio A. Arechar; David G. Rand; Joshua B. Plotkin
  17. Banks and financial markets in microfounded models of money By van Buggenum, Hugo
  18. Do Central Banks Rebalance Their Currency Shares? By Menzie D. Chinn; Hiro Ito; Robert N. McCauley

  1. By: Nizam, Ahmed Mehedi
    Abstract: With the rapid proliferation of mobile telephony and the establishment of an IT-enabled payment and settlement system, Bangladesh, nowadays, is experiencing a meteoric rise in the usage of mobile financial services (MFS). As more and more people are opting to use this service, a huge number of mobile accounts are opened every day and a substantial amount of money is deposited, withdrawn and transferred frequently through the mobile network. This ever-increasing amount of mobile money flowing through the network may have a sizeable impact on the overall money supply of the country. Thus far, no systematic study has been conducted to quantify the impact of the mobile money on the conventional money supply of Bangladesh. In this study, we attempt to quantify the contribution of mobile money on the money supply which is an important quantity-based anchor of monetary policy in Bangladesh. Apart from quantifying the impact of digital (mobile) money on the money supply, we also qualitatively discuss its implication on another price-based nominal anchor of monetary policy in Bangladesh, i.e., interest rate. Moreover, in recent times, the government of Bangladesh has capped market interest rate with an intent to boost up business activities and in doing so, it (the government) has irrevocably broken the money market equilibrium which may result into dead-weight loss according to economic theory. Here, we qualitatively argue that financial inclusion through MFS has the potential to substantially reduce market interest rate without any manual intervention by significantly adding to the money supply which is supposed to be resulted into a reduced interest rate as an eventual consequence.
    Keywords: Mobile financial services; Bangladesh; financial inclusion; money supply; money multiplier; monetary policy
    JEL: E51 E52 G21 G28 O11 O33
    Date: 2021–09–02
  2. By: Muhammad Najib Azali; Ainur Zaireen Zainuddin; Rohaya Abdul Jalil; Norhidayah Mohd Yunus
    Abstract: Land registration requires complex of sensitive data which require decentralise environment. As land registration system requires complexities and challenges in term of land tenure security at high risk scale, the security level of land registration system need to be put at the highest level. Fraud is one the major problem as well as long process problem. This is due to the centralised transaction system which resulted bottlenecks at the processing system. The blockchain technology by using Digital Security Offering (DSO) able to create public ledgers from all complex transactions that has high potential to replace the complicated systems with one simple database. Therefore, objectives of this research are (1) To identify characteristics in blockchain technology by using DSO for the land registration system in Malaysia (2) To investigate the blockchain technology by using DSO that is able to solve the problems in the Malaysian land registration system. By using systematic literature approach, this paper will assess the innovative method to enhance land registration system in Malaysia. The innovation in land registration system will bring Malaysia meet the challenge in digital economy in Industrial Revolution 4.0.
    Keywords: blockchain; Land; Malaysia; Technology
    JEL: R3
    Date: 2021–01–01
  3. By: Boeing, Geoff (Northeastern University); Besbris, Max; Wachsmuth, David; Wegmann, Jake
    Abstract: This article interprets emerging scholarship on rental housing platforms—particularly the most well-known and used short- and long-term rental housing platforms—and considers how the technological processes connecting both short-term and long-term rentals to the platform economy are transforming cities. It discusses potential policy approaches to more equitably distribute benefits and mitigate harms. We argue that information technology is not value-neutral. While rental housing platforms may empower data analysts and certain market participants, the same cannot be said for all users or society at large. First, user-generated online data frequently reproduce the systematic biases found in traditional sources of housing information. Evidence is growing that the information broadcasting potential of rental housing platforms may increase rather than mitigate sociospatial inequality. Second, technology platforms curate and shape information according to their creators' own financial and political interests. The question of which data—and people—are hidden or marginalized on these platforms is just as important as the question of which data are available. Finally, important differences in benefits and drawbacks exist between short-term and long-term rental housing platforms, but are underexplored in the literature: this article unpacks these differences and proposes policy recommendations.
    Date: 2021–08–21
  4. By: S, Suresh Kumar; S R, Shehnaz; Salam, Shiny
    Abstract: The country’s GDP grew at a modest 4.5 per cent in the September quarter 2019, and the official data released showed a sixth straight fall in quarterly GDP growth and also the first time fall below the psychologically important 5 per cent mark in almost seven years. It is in this context that the festive sales hosted by the ecommerce sector ended first week of October 2019 where the e-tailers in India, mainly Amazon and Flipkart, achieved a record $3 billion (about Rs 19,000 crore) of Gross Merchandise Value (GMV) during the period as per a report by consulting firm RedSeer has to be evaluated. The success of business models, whether it be in e-tailing (amazon, flip-kart etc.), transportation (Uber, Ola Cabs etc..) or online ordering from eatery apps (Ubereats, Swiggy, Zomato etc.) despite the reverse trend in GDP growth and sustained recession, needs to be evaluated in the context of innovation applied and technology adoption. It is in the backdrop of above said upsurge of business model innovations that can combat the challenges in downfalls of an economy and/ or ever-increasing competition on a global platform, the effectiveness of business models assumes significance. A laggard manager clinging on to his age-old business model is now forced to look forward to articulate their existing business model, since the core enabler of a firm’s performance is an effective business model. Understanding the possibilities for innovating through theoretical insight and practical guidelines needs identification of types and the development of a typology of business model innovations. The online eatery business of restaurants, with key partners such as payment processors, mapping data providers and delivery bike drivers through channels such as mobile apps and telephone ensures customer relations by providing convenience in the form of wide choice of sourcing and menu as well as easy payments has found its own way into urban and semi-urban centres of almost all the states in India, Kerala being no exception. The proposed study intends to identify how successful is the business model adopted by medium and small restaurants in providing its customers a wide choice of menu coupled with timely and prompt delivery through online ordering apps such as Uber Eats, Swiggy, Zomato etc across the major cities in Kerala. The study relies on structural equation modelling to identify the impact of constructs namely customer (eater) satisfaction and delivery partner (biker) benefit on the success of business model through evaluation of benefits to the eateries (restaurants). These constructs or latent variables were predicted using 8 measured variables for customer satisfaction, 4 measured variables for job potential and 4 measured variables for eatery benefits. The structural equation model will evaluate the predictability capability of each measured variables. The hypothesis whether the customer satisfaction and employee benefits directly impact success of the online business model will be tested. Data collected from 120 regular users of online food apps and 120 delivery boys as well as 120 restaurant partners from Thiruvananthapuram and Ernakulam cities, using separate questionnaire were analysed. The responses to measured variables were obtained on a 5-point scale and the parameters of model were tested for internal reliability, convergent and discriminant validity, fitness indices and probabilities of standardised regression weights. The results of analysis revealed that all the dimensions of customer satisfaction and job potential significantly predicts to success of business model and success of business model directly impacts the benefits derived by eateries through the business model of online ordering and delivery of food
    Keywords: Food Apps, Online retailing, Eatery Menu, Delivery Personnel, Structural Equation Modelling
    JEL: D12 D40 M31
    Date: 2020–02
  5. By: Ballis, Antonis; Drakos, Konstantinos
    Abstract: Utilizing all cryptocurrencies since market inception, we investigate the mobility properties of the market. Using a Markov Chain model, we estimate the Transition Matrix, describing the probabilistic structure of cross-sectional capitalization transitions. We further apply various indices providing the anatomy of cross-sectional dynamics. Additionally, we compare the early cryptocurrency market period to the more recent era, investigating whether there are any discernible changes in the mobility structure. We find that persistence, in the first decade of the crypto market’s operation has been substantial. Moreover, mobility (persistence) is found to be lower (higher) in the recent era of the market. Also, we document that the exit probability monotonically decreases with the cryptocurrency's capitalization. Exit probability exhibits a clear reduction in the recent market era. Overall, the results of this study can also be interpreted as signs that the cryptocurrency market has entered into a maturity phase.
    Keywords: Cryptocurrencies; Markov Chain; Transition Matrix
    JEL: G10 G15 G23
    Date: 2020–05
  6. By: Pauline Affeldt; Elena Argentesi; Lapo Filistrucchi
    Abstract: We empirically investigate the relevance of multi-homing in two-sided markets. First, we build a micro-founded structural econometric model that encompasses demand for differentiated products and allows for multi-homing on both sides of the market. We then use an original dataset on the Italian daily newspaper market that includes information on double-homing by readers to estimate readers’ and advertisers’ demand. The results show that an econometric model that does not allow for multihoming is likely to produce biased estimates of demand on both sides of the market. In particular, on the reader side, accounting for multi-homing helps to recognize complementarity between products; on the advertising side, it allows to measure to what extent advertising demand depends on the shares of exclusive and overlapping readers.
    Keywords: Two-sided markets, platforms, multi-homing, media, advertising
    JEL: C51 D43 C13 L82 M37
    Date: 2021
  7. By: SOLANO HERMOSILLA Gloria (European Commission - JRC); ADEWOPO Julius; PETER Helen; BARREIRO HURLE Jesus (European Commission - JRC); ARBIA Giuseppe; NARDELLI Vincenzo; GORRIN GONZALEZ Celso (European Commission - JRC); MICALE Fabio (European Commission - JRC); CECCARELLI Tomaso
    Abstract: Timely and reliable monitoring of commodity food prices is an essential requirement for the assessment of market and food security risks and the establishment of early warning systems, especially in developing economies. However, data from regional or national systems for tracking changes of food prices in sub-Saharan Africa lacks the temporal or spatial richness and is often insufficient to inform targeted interventions. In addition to limited opportunity for [near-]real-time assessment of food prices, various stages in the commodity supply chain are mostly unrepresented, thereby limiting insights on stage-related price evolution. Yet, governments and market stakeholders rely on commodity price data to make decisions on appropriate interventions or commodity-focused investments. Recent rapid technological development indicates that digital devices and connectivity services are becoming affordable for many, including in remote areas of developing economies. This offers a great opportunity both for the harvesting of price data (via new data collection methodologies, such as crowdsourcing/crowdsensing — i.e. citizen-generated data — using mobile apps/devices), and for disseminating it (via web dashboards or other means) to provide real-time data that can support decisions at various levels and related policy-making processes. However, market information that aims at improving the functioning of markets and supply chains requires a continuous data flow as well as quality, accessibility and trust. More data does not necessarily translate into better information. Citizen-based data-generation systems are often confronted by challenges related to data quality and citizen participation, which may be further complicated by the volume of data generated compared to traditional approaches. Following the food price hikes during the first noughties of the 21st century, the European Commission's Directorate General for International Cooperation and Development (DG DEVCO) started collaborating with the European Commission’s Joint Research Centre (JRC) on innovative methodologies for real-time food price data collection and analysis in developing countries. The work carried out so far includes a pilot initiative to crowdsource data from selected markets across several African countries, two workshops (with relevant stakeholders and experts), and the development of a spatial statistical quality methodology to facilitate the best possible exploitation of geo-located data. Based on the latter, the JRC designed the Food Price Crowdsourcing Africa (FPCA) project and implemented it within two states in Northern Nigeria. The FPCA is a credible methodology, based on the voluntary provision of data by a crowd (people living in urban, suburban, and rural areas) using a mobile app, leveraging monetary and non-monetary incentives to enhance contribution, which makes it possible to collect, analyse and validate, and disseminate staple food price data in real time across market segments.
    Keywords: Food prices, market information, crowdsourcing, mobile app, digital platform, behavioural tools, citizens science
    Date: 2020–07
  8. By: Hamed Amini; Maxim Bichuch; Zachary Feinstein
    Abstract: In this paper, we construct a decentralized clearing mechanism which endogenously and automatically provides a claims resolution procedure. This mechanism can be used to clear a network of obligations through blockchain. In particular, we investigate default contagion in a network of smart contracts cleared through blockchain. In so doing, we provide an algorithm which constructs the blockchain so as to guarantee the payments can be verified and the miners earn a fee. We, additionally, consider the special case in which the blocks have unbounded capacity to provide a simple equilibrium clearing condition for the terminal net worths; existence and uniqueness are proven for this system. Finally, we consider the optimal bidding strategies for each firm in the network so that all firms are utility maximizers with respect to their terminal wealths. We first look for a mixed Nash equilibrium bidding strategies, and then also consider Pareto optimal bidding strategies. The implications of these strategies, and more broadly blockchain, on systemic risk are considered.
    Date: 2021–09
  9. By: Martin, Elliot; Yassine, Ziad; Cohen, Adam; Shaheen, Susan
    Abstract: This report evaluates the Valley Metro Mobility Platform project, part of the Federal Transit Administration (FTA) Mobility on Demand (MOD) Sandbox program. Valley Metro currently provides a Valley Metro Ridekick mobile application for its users that features trip planning for light rail and buses. The Mobility Platform project aimed to develop new trip planning features and an integrated payment system for public and private transportation in an updated pilot app called Pass2Go, but integration with private transportation was not achieved and the app was discontinued, eventually to be replaced by another app. The evaluation of the project explored its effect on user travel and planning times, accessibility, and connectivity to different modes of transportation. Overall, the results showed that the Pass2Go app was an enhancement over the existing Ridekick app. The evaluation supported hypotheses that wait and planning times were reduced, planning methods were improved, and that the platform enhanced accessibility and connectivity to different transportation options. Also, the project provided a platform for other public transportation agencies to exchange travel information and produced lessons learned. Most hypotheses within this evaluation were supported and, overall, the project was found to perform very well.
    Keywords: Engineering, Mobility on Demand, MOD, sandbox, shared mobility, Mobility as a Service, MaaS, independent evaluation, mobility platform, Valley Metro, transit
    Date: 2020–11–01
  10. By: Korus, Arthur; Löher, Jonas; Nielen, Sebastian; Pasing, Philipp
    Abstract: Die Studie untersucht die Potenziale von Fintechs für kleine und mittlere Unternehmen (KMU). Fintechs bringen Kapitalangebot und -nachfrage oftmals effizienter zusammen als Banken. Ihre Lösungen können in Einzelfällen Finanzierungsgeschwindigkeiten beschleunigen, Kreditkonditionen verbessern und Finanzierungen ermöglichen. Darüber hinaus erhöhen Fintechs den Innovationsdruck auf etablierte Banken, ihre Prozesse und Dienstleistungen zu optimieren. Zunehmend kooperieren beide Seiten hierzu miteinander, wodurch Banken vermehrt als Plattformen agieren. Insbesondere etablierte KMU können demzufolge sowohl innerhalb als auch außerhalb der bestehenden Hausbankbeziehung von den verbesserten Angeboten profitieren.
    Keywords: Unternehmensfinanzierung,KMU-Finanzierung,Mittelstandsfinanzierung,Fintechs,digitale Finanzierung,Corporate Financing,SME Financing,Fintech,Digital Finance
    JEL: G20 G23 G30 O16
    Date: 2021
  11. By: Liu, Weijun; Florkowski, Wojciech J.
    Keywords: Food Consumption/Nutrition/Food Safety, Agribusiness, Marketing
    Date: 2021–08
  12. By: Rohde, Paul; Mau, Gunnar
    Abstract: Purpose: This study aims to examine the ability of the social influence heuristics framework to capture skillful and creative social media influencer (SMI) marketing in long-form video content on YouTube for influencer-owned brands and products. Design/methodology/approach: The theoretical lens was a framework of seven evidence-based social influence heuristics (reciprocity, social proof, consistency, scarcity, liking, authority and unity). For the methodological lens, a qualitative case study approach was applied to a purposeful sample of 6 SMIs and 15 videos on YouTube. Findings: The evidence shows that self-promotional influencer marketing in long-form video content is relatable to all seven heuristics and shows signs of high elaboration, innovativeness and skillfulness. Research limitations/implications: The study reveals that a heuristic-based account of self-promotional influencer marketing in long-form video content can greatly contribute to the understanding of how various well-established marketing concepts (e.g. source attractivity) might be expressed in real-world communications and behaviors. Based on this improved, in-depth understanding, current research efforts, such as experimental studies using one video with a more or less arbitrary influencer and pre-post measure, are advised to explore research questions via designs that account for the observed subtle and complex nature of real-world influencer marketing in long-form video content. Practical implications: This structured account of skillful and creative marketing can be used as educational and instructive material for influencer marketing practitioners to enhance their creativity, for consumers to increase their marketing literacy and for policymakers to rethink policies for influencer marketing. Originality/value: Prior research has created a body of knowledge on influencer marketing. However, a conceptual disconnect has hampered the advancement of the field. The social influence heuristics framework is a highly functional conceptual bridge that links the qualitative and quantitative evidence and will advance the understanding of influencer marketing more effectively.
    Keywords: celebrity endorsement; children; influencer marketing; long-form video marketing; native marketing; social influence; social media marketing; social psychology; vlog; young people; YouTube
    JEL: L81
    Date: 2021–08–10
  13. By: Mahamat Ibrahim Ahmat Tidjani (UFHB - Université Félix Houphouët-Boigny)
    Abstract: This paper aims to explore the state of financial inclusion in Chad. Adopting a Multiple Correspondence Analysis (MCA) on a sample of 1000 individuals from the Global Findex (2017), the study measured the inclusiveness of financial systems in Chad through a Financial Inclusion Index (FII). Furthermore, it assessed the distribution of the FII using the factor decomposition of the Gini coefficient. The findings showed that the average FII was low, 24.89%, and it varied between 7.43% and 60.35%. Financial institution account, deposit, withdrawal, and debit card ownership were the most influential indicators of financial inclusion in Chad. Moreover, the paper revealed that, despite its low level, financial inclusion was not smoothly distributed among the Chadian population (Gini coefficient of 0.196). The analysis of the financial inclusion inequality profile showed that there was a persistent financial inclusion gender gap in Chad, exacerbated by discriminations in education and income. Thus, policy interventions should target the provision of formal accounts, a reduction of costs of financial services (withdrawal and debit cards), and promoting formal savings by developing adequate savings products, to foster financial inclusion in Chad. Furthermore, these policies should be gender-responsive while considering its interaction with education and income.
    Keywords: Financial inclusion index,multiple correspondence analysis,inequality decomposition,Chad
    Date: 2020
  14. By: Verena Rock; Sarah Schlesinger; Philipp J. Liebold; Nadine Brehm
    Abstract: PropTechs are external drivers of digitalisation in the real estate industry. Offering mostly innovative digital solutions, they are moving into the market with high speed, but struggeling with challenges or even market entry barriers. There is a lack of systematic approaches to transparency in key market characteristics and figures of the growing German proptech sector, meanwhile being classified as a subsector of the real estate industry. The majority of available surveys and studies on digital transformation and digitalisation analyses or emphasises the view of the traditional real estate sector. PropTechs' perspectives and their challenges are under-represented. This paper aims at closing this gap. Using two proptech surveys from 2020 (explorative, interview-based) and 2021 (descriptive, questionnaire-based with 185 proptech respondents), the authors classify proptechs by their degree of maturity. Applying factor analysis, they identify major challenges for these proptech clusters throughout their sales cycle, when faced with the real estate industry as customer. Further, the paper will elaborate on drivers and models of horizontal and vertical cooperations between proptechs and real estate companies. Finally, the authors reflect on recommendations for a sustainable digital transformation of the German real estate industry, integration both proptechs and real estate companies in a common ecosystem.
    Keywords: Digital Transformation; Digitalisation; market entry barriers; proptech
    JEL: R3
    Date: 2021–01–01
  15. By: Etienne Capron (MSH Ange-Guépin - Maison des Sciences de l'Homme Ange-Guépin - UN - Université de Nantes - UM - Le Mans Université - UA - Université d'Angers - CNRS - Centre National de la Recherche Scientifique, GRANEM - Groupe de Recherche Angevin en Economie et Management - UA - Université d'Angers - AGROCAMPUS OUEST - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - Institut National de l'Horticulture et du Paysage); Dominique Sagot-Duvauroux; Raphaël Suire
    Abstract: This article aims to study the role of brokers, places, and events in the structuring of a community of innovation whose practice is at the intersection of art and technology-projection mapping. Using an exploratory case study, we observe the relationships between the different actors who form a community, sharing a common interest in a techno-creative practice-but whose collective innovation dynamic is only in its beginnings and remains unstable. We document the critical role of places and events as intermediary platforms for these actors. This reveals preferential circulations-patterns of moves among a set of focal locations in the city for a community-and the crucial role of these locations in communities' emergence.
    Keywords: techno-creative innovation,community,network analysis,places,events,brokers
    Date: 2021–07
  16. By: Alexander J. Stewart; Antonio A. Arechar; David G. Rand; Joshua B. Plotkin
    Abstract: The spread of misinformation and "fake news" continues to be a major focus of public concern. A great deal of recent research has examined who falls for misinformation and why, and what can be done to make people more discerning consumers of news. Comparatively little work, however, has considered the choices of those who produce misinformation, and how these choices interact with the psychology of news consumers. Here we use game-theoretic models to study the strategic interaction between news publishers and news readers. We show that publishers who seek to spread misinformation can generate high engagement with falsehoods by using strategies that mix true and false stories over time, in such a way that they serve more false stories to more loyal readers. These coercive strategies cause false stories to receive higher reader engagement than true stories - even when readers strictly prefer truth over falsehood. In contrast, publishers who seek to promote engagement with accurate information will use strategies that generate more engagement with true stories than with false stories. We confirm these predictions empirically by examining 1,000 headlines from 20 mainstream and 20 fake news sites, comparing Facebook engagement data with 20,000 perceived accuracy ratings collected in a survey experiment. We then use our model to analyze possible ways to disincentivize fake news, finding that reducing the capacity of news sources to microtarget readers, and increasing readers' level of attention, reduces the efficacy of coercion. Finally, we show that if a publisher incorrectly assumes that readers prefer falsehoods, their resulting publication strategy can manufacture greater engagement with false news - leading to a self-reinforcing cycle of false news promotion.
    Date: 2021–08
  17. By: van Buggenum, Hugo (Tilburg University, School of Economics and Management)
    Date: 2021
  18. By: Menzie D. Chinn; Hiro Ito; Robert N. McCauley
    Abstract: Do central banks rebalance their currency shares? The answer matters because the dollar’s predominant role in large official reserve holdings means that widespread rebalancing requires central banks to buy (sell) a depreciating (appreciating) dollar, stabilising its value against other major currencies. We hypothesise that larger reserve holdings have led central banks to approach their investment more systematically and to make rebalancing in the face of exchange rate changes the norm. We illustrate the choice with two polar case studies: the US clearly does not rebalance its small FX reserves; Switzerland does rebalance its very large reserves, so that changes in exchange rates do not move its currency allocation. Our hypothesis finds partial support in global aggregated data. They reject both no rebalancing and full rebalancing and point to emerging market economies as the source of the aggregate result. We also test for rebalancing with panel data and find that our sample economies on average again behave in intermediate fashion, partially but not fully rebalancing. However, when observations are weighted by the size of reserves, the panel analysis finds full rebalancing. A variety of control variables and splits of the panel sample do not alter the thrust of these findings. Central banks rebalance their FX reserves extensively but not uniformly.
    JEL: F31 F42
    Date: 2021–08

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