35th Commencement Day celebrations.

Lecture on ‘financial globalization and international financial markets’ as part of the Export-Import (EXIM) Bank of India’s 35th Commencement Day celebrations.

Details:

• Professor Hélène Rey, Professor of Economics at London Business School delivered the lecture.
• By the measures of internationalization, the dollar is largely ahead of other currencies with the euro as a distant second.
• International reserves are held in dollars and dollar is an important vehicle currency on the foreign exchange market.
• According to a survey by the European Central Bank, the dollar constituted 62.2% international debt, 56.3% international loan and 62.7% global exchange reserves, whereas the euro had acquired a much less global market.
• India is one of the most dollarized countries in the world, following Brazil, Pakistan, and Indonesia, in the share of imports and exports invoiced in dollars.

The role of the dollar in international markets:

• Notably, the value of the U.S.’s external dollar liabilities such as Treasury bills and U.S. government bonds held by the rest of the world tend to appreciate in bad times, pointing to the indirect role of the U.S. as an insurer.
• Given the dominance of the U.S. dollars, the U.S. gets seigniorage as people from different countries use dollars.
• Seigniorage is the difference between the value of currency/money and the cost of producing it. It is essentially the profit earned by the government by printing currency.

Concerns:

The dollar is becoming more unstable over time as the relative size of the U.S. shrinks in the world economy while the stock of dollar liabilities in the rest of the world has grown rapidly.

Source: The Hindu