International Dollar Flows
42 Pages Posted: 24 Sep 2015
Date Written: September 22, 2015
Using confidential Federal Reserve data, we study the factors driving U.S. banknote flows between the United States and other countries. These flows are a significant component of capital flows in emerging market economies, where physical U.S. currency functions as a safe asset and precautionary demand for U.S. banknotes is a form of flight to quality. Prior to the global financial crisis, country-specific factors, including local economic uncertainty, largely explain the volume and heterogeneity of the flows. Since the crisis, global factors, particularly, global economic uncertainty, explain the flows markedly well. Further, precautionary demand for U.S. banknotes is not episodic.
Keywords: capital flows, currency flows, U.S. banknotes, safe asset, emerging market economies, economic uncertainty, flight to quality, capital flight, money demand
JEL Classification: F30, E40, E50
Suggested Citation: Suggested Citation