Dominant Currency Debt

95 Pages Posted: 22 Aug 2018 Last revised: 11 Jan 2021

See all articles by Egemen Eren

Egemen Eren

Bank for International Settlements (BIS) - Monetary and Economic Department

Semyon Malamud

Ecole Polytechnique Federale de Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute

Multiple version iconThere are 3 versions of this paper

Date Written: November 27, 2018


We propose a "debt view" to explain the dominant international role of the dollar and provide broad empirical support for it. Within a simple capital structure model in which firms optimally choose the currency composition of their debt, we derive conditions under which all firms issue debt in a single, "dominant" currency. Theoretically, it is the currency that (1) depreciates in global downturns over horizons of typical debt maturity of firms and (2) has the steepest nominal yield curve. Both forward-looking and historical measures suggest that the dollar fits this description better than all major currencies. The debt view can jointly explain the fall and the rise of the dollar in international debt markets over the last two decades. It also offers insights into the future of the dominance of the dollar in the aftermath of the Covid-19 crisis.

Keywords: Dollar debt, dominant currency, exchange rates, inflation

JEL Classification: E44, E52, F33, F34, F41, F42, F44, G01, G15, G32

Suggested Citation

Eren, Egemen and Malamud, Semyon, Dominant Currency Debt (November 27, 2018). Swiss Finance Institute Research Paper No. 18-55, Available at SSRN: or

Egemen Eren

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel

Semyon Malamud (Contact Author)

Ecole Polytechnique Federale de Lausanne ( email )

Lausanne, 1015

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

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