BIS study finds wavelike dollarisation in international bonds
The Bank for International Settlements (BIS) has published a new working paper revealing that the US dollar's prominence in international debt securities has evolved in a wavelike pattern, not a monotonic trend. The research identifies three dollarisation waves since the 1960s.
The dollar's wavelike journey
A new working paper from the Bank for International Settlements (BIS) reveals that the US dollar's share in international debt securities (IDS) has not followed a consistent upward or downward trend.
Instead, the study identifies a distinct wavelike pattern, documenting three major dollarisation waves since the 1960s.
The most recent wave, following the global financial crisis, saw the dollar's share rebound significantly, nearly reaching its level observed at the launch of the euro in 2000. The researchers emphasize that these findings are robust, holding true even when accounting for compositional shifts, currency valuation effects, and alternative data definitions.
Furthermore, the paper notes a 'euro moment' after 2000, where the euro's share rose considerably.
While it has since declined post-GFC, its 2024 share remains markedly higher than at its introduction, suggesting that assertions about the euro's decline may overstate a short-term trend.
Financial sector's shifting tides
The BIS paper highlights the financial sector's significant role in driving dollarisation waves.
The 2000s dollar wave was influenced by a growth spurt and subsequent slowdown in euro-denominated international debt securities (IDS) issuance by banks and non-bank financial institutions.
Post-GFC, the financial sector's euro-denominated IDS issuance sharply decelerated, contributing to the euro's declining share.
The study also notes considerable stickiness in IDS currency denomination, with emerging market economies consistently preferring the dollar.
Among other major currencies, the Chinese renminbi has gained momentum since 2000, surpassing the Swiss franc and rivalling the Japanese yen in outstanding IDS by 2024. The Japanese yen and Swiss franc have seen their shares decline, while the British pound sterling's share remained stable.
Dollar's enduring enigma
The study effectively challenges simplistic narratives of dollarisation or de-dollarisation, revealing a more complex, cyclical reality.
While the data confirms the dollar's persistent dominance, it also underscores the fragility of its unchallenged primacy, especially given the euro's resilience and the renminbi's gradual ascent.
For policymakers, this suggests that the global monetary system is in a state of dynamic equilibrium, where structural shifts are slow and require nuanced understanding beyond linear trends.