Exchange Arrangements Entering the 21st Century: Which Anchor Will Hold?

86 Pages Posted: 7 Feb 2017 Last revised: 18 Sep 2022

See all articles by Ethan Ilzetzki

Ethan Ilzetzki

London School of Economics & Political Science (LSE) - Department of Economics

Carmen Reinhart

Harvard University - Center for Business and Government; Centre for Economic Policy Research (CEPR); World Bank; University of Maryland - School of Public Affairs; National Bureau of Economic Research (NBER); International Monetary Fund (IMF); Peterson Institute for International Economics; Harvard University, Harvard Kennedy School (HKS), Belfer Center for Science and International Affairs (BCSIA) ; Harvard University - Harvard Kennedy School (HKS)

Kenneth Rogoff

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: February 2017

Abstract

This paper provides a comprehensive history of anchor or reference currencies, exchange rate arrangements, and a new measure of foreign exchange restrictions for 194 countries and territories over 1946-2016. We find that the often-cited post-Bretton Woods transition from fixed to flexible arrangements is overstated; regimes with limited flexibility remain in the majority. Our central finding is that the US dollar scores (by a wide margin) as the world’s dominant anchor currency and, by some metrics, its use is far wider today than 70 years ago. In contrast, the global role of the euro appears to have stalled in recent years. While the incidence of capital account restrictions has been trending lower for decades, an important wave toward capital market integration dates as recently as the mid-1990s. We suggest that record accumulation of reserves post 2002 has much to do with many countries’ desire to stabilize exchange rates in an environment of markedly greater capital mobility. Indeed, the continuing desire to manage exchange rates despite increased capital mobility post-2003 may be a key factor underpinning the modern-day Triffin dilemma that some have recently pointed to.

Suggested Citation

Ilzetzki, Ethan and Reinhart, Carmen and Reinhart, Carmen and Reinhart, Carmen and Reinhart, Carmen and Reinhart, Carmen and Reinhart, Carmen and Reinhart, Carmen and Reinhart, Carmen and Rogoff, Kenneth S., Exchange Arrangements Entering the 21st Century: Which Anchor Will Hold? (February 2017). NBER Working Paper No. w23134, Available at SSRN: https://ssrn.com/abstract=2912107

Ethan Ilzetzki (Contact Author)

London School of Economics & Political Science (LSE) - Department of Economics ( email )

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Carmen Reinhart

Centre for Economic Policy Research (CEPR)

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