Safe Assets: Made, Not Just Born

22 Pages Posted: 27 Feb 2019

See all articles by Robert N. McCauley

Robert N. McCauley

University of Oxford - Oxford Centre for Global History; Boston University, Global Development Policy Center

Date Written: February 20, 2019


Official reserve managers have a big stake in the debate over safe assets: their portfolios just about define such assets. This paper conveys the message that reserve managers need not worry about a shortage of safe assets. The debate turns first on whether demand for dollar safe assets will grow as rapidly as emerging market economies (EMEs). Second, it turns on whether the supply of dollar safe assets only grows with US fiscal deficits. Neither holds. On the demand side, EMEs' growth does not require ever higher dollar reserves. Indeed, the global economy may have reached "peak reserves" in 2014. On the supply side, law and policy extend state backing to various IOUs, thereby creating safe assets. US government support for the housing agencies Fannie Mae and Freddie Mac has made their debt into safe assets, albeit with wobbles. Federal Reserve liquidity, Federal Deposit Insurance Corporation insurance, and, in extremis as in 2008, Treasury equity also work to make US bank deposits safe. Elsewhere, government support of banks allows those from well rated countries to compete with US banks in issuing safe dollar deposits. Moreover, supranational organisations, non-US sovereigns and their agencies all compete with the US Treasury in issuing safe dollar bonds. In allocating their dollar foreign exchange reserves, central banks make room for such competitors. In particular, they hold more than a third of such reserves in instruments other than US Treasury securities.

Keywords: safe assets; US Treasury securities; agency securities; bank deposits; Eurodollars; Triffin dilemma

JEL Classification: F31, F33, G15

Suggested Citation

McCauley, Robert N. and McCauley, Robert N., Safe Assets: Made, Not Just Born (February 20, 2019). BIS Working Paper No. 769, Available at SSRN:

Robert N. McCauley (Contact Author)

Boston University, Global Development Policy Center ( email )

67 Bay State Road
Boston, MA 02215
United States

University of Oxford - Oxford Centre for Global History ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

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