Bank Of Greece Sa · ATHEX:TELL
Bank Of Greece Sa — Technical Presentation (September 2022)
56 slides from Bank Of Greece Sa's technical presentation, Sep 29, 2022
Slide 1: Markets vs. policies: Can the US dollar's dominance in global trade be dented?
Markets vs. policies: Can the US dollar’s dominance in global trade be dented? Georgios Georgiadis] Helena Le Mezo ] Arnaud Mehl] Cédric Tille¶ ] European Central Bank ¶ Geneva Graduate Institute & CEPR 6th ESCB Research Cluster 2 Workshop 29 September 2022 The views expressed in the paper are those
Slide 2: Motivation
1/48 Motivation USD is the dominant currency in global trade invoicing Gopinath (2015); Boz et al. (2022) Important implications for dynamics of global financial system Caballero et al. (2008); Gourinchas and Rey (2013); Mukhin (2018); Gourinchas (2019); Miranda-Agrippino and Rey (2020) EUR initiall
Slide 3: Motivation
1/48 Motivation USD is the dominant currency in global trade invoicing Gopinath (2015); Boz et al. (2022) Important implications for dynamics of global financial system Caballero et al. (2008); Gourinchas and Rey (2013); Mukhin (2018); Gourinchas (2019); Miranda-Agrippino and Rey (2020) EUR initiall
Slide 4: Motivation
1/48 Motivation USD is the dominant currency in global trade invoicing Gopinath (2015); Boz et al. (2022) Important implications for dynamics of global financial system Caballero et al. (2008); Gourinchas and Rey (2013); Mukhin (2018); Gourinchas (2019); Miranda-Agrippino and Rey (2020) EUR initiall
Slide 5: This paper
2/48 This paper EUR vs. USD: ‘Markets’ I International role of the EUR has been a ‘market-driven process’ European Central Bank (2018) I Do market determinants of invoicing currency choice predicted by theory underpin the use of the EUR and thereby limit USD dominance? RMB vs. USD (and EUR): ‘Polici
Slide 6: This paper
2/48 This paper EUR vs. USD: ‘Markets’ I International role of the EUR has been a ‘market-driven process’ European Central Bank (2018) I Do market determinants of invoicing currency choice predicted by theory underpin the use of the EUR and thereby limit USD dominance? RMB vs. USD (and EUR): ‘Polici
Slide 7: Findings
3/48 Findings EUR vs. USD: ‘Markets’ I Trade and GVC integration with EA underpin EUR invoicing and limit USD dominance RMB vs. USD (and EUR): ‘Policies’ I PBoC swap lines followed by greater RMB invoicing, at expense of USD and EUR
Slide 8: Agenda: EUR internationalisation
EUR vs. USD: ‘Markets’ 4/48 1 EUR vs. USD: ‘Markets’ EUR internationalisation Theory on the determinants of invoicing currency choice Stylised facts on USD and EUR invoicing Regression results 2 RMB vs. USD (and/or EUR): ‘Policies’ RMB internationalisation Stylised facts on RMB invoicing Regression
Slide 9: Agenda: EUR internationalisation
EUR vs. USD: ‘Markets’ EUR internationalisation 5/48 1 EUR vs. USD: ‘Markets’ EUR internationalisation Theory on the determinants of invoicing currency choice Stylised facts on USD and EUR invoicing Regression results 2 RMB vs. USD (and/or EUR): ‘Policies’ RMB internationalisation Stylised facts on
Slide 10: EUR internationalisation
EUR vs. USD: ‘Markets’ EUR internationalisation 6/48 EUR internationalisation International role of the euro "essentially a market-driven process" since Day 1 European Central Bank (2018) Reflection of a compromise between those in favour of internationalisation and those against (ECB neutral positi
Slide 11: Agenda: Theory on the determinants
EUR vs. USD: ‘Markets’ Theory on the determinants of invoicing currency choice 7/48 1 EUR vs. USD: ‘Markets’ EUR internationalisation Theory on the determinants of invoicing currency choice Stylised facts on USD and EUR invoicing Regression results 2 RMB vs. USD (and/or EUR): ‘Policies’ RMB internat
Slide 12: Theory on the determinants of invoicing currency choice
EUR vs. USD: ‘Markets’ Theory on the determinants of invoicing currency choice 8/48 Theory on the determinants of invoicing currency choice Firm invoicing currency choice minimises deviations of pre-set from optimal flex price Bacchetta and van Wincoop (2005); Novy (2006); Goldberg and Tille (2008);
Slide 13: Theory on the determinants of invoicing currency choice
EUR vs. USD: ‘Markets’ Theory on the determinants of invoicing currency choice 8/48 Theory on the determinants of invoicing currency choice Firm invoicing currency choice minimises deviations of pre-set from optimal flex price Bacchetta and van Wincoop (2005); Novy (2006); Goldberg and Tille (2008);
Slide 14: Theory on the determinants of invoicing currency choice
EUR vs. USD: ‘Markets’ Theory on the determinants of invoicing currency choice 8/48 Theory on the determinants of invoicing currency choice Firm invoicing currency choice minimises deviations of pre-set from optimal flex price Bacchetta and van Wincoop (2005); Novy (2006); Goldberg and Tille (2008);
Slide 15: Theory on the determinants of invoicing currency choice
EUR vs. USD: ‘Markets’ Theory on the determinants of invoicing currency choice 8/48 Theory on the determinants of invoicing currency choice Firm invoicing currency choice minimises deviations of pre-set from optimal flex price Bacchetta and van Wincoop (2005); Novy (2006); Goldberg and Tille (2008);
Slide 16: US, EA, RoW invoicing diagram
EUR vs. USD: ‘Markets’ Theory on the determinants of invoicing currency choice 9/48 Theory on the determinants of invoicing currency choice US EA PCP PCP (USD) LCP DCP LCP (EUR) (USD) (USD/EUR) (EUR) RoW
Slide 17: Agenda: Stylised facts on USD and EUR invoicing
EUR vs. USD: ‘Markets’ Stylised facts on USD and EUR invoicing 10/48 1 EUR vs. USD: ‘Markets’ EUR internationalisation Theory on the determinants of invoicing currency choice Stylised facts on USD and EUR invoicing Regression results 2 RMB vs. USD (and/or EUR): ‘Policies’ RMB internationalisation St
Slide 18: USD/EUR country/time coverage in the dataset
EUR vs. USD: ‘Markets’ Stylised facts on USD and EUR invoicing 11/48 USD/EUR country/time coverage in the dataset of Boz et al. (2022) Exports Country−year observations Data not available 10 − 30 5 − 10 1−5 Data pending Note: The figure shows the global country coverage of our data on US dollar expo
Slide 19: Share of world exports
EUR vs. USD: ‘Markets’ Stylised facts on USD and EUR invoicing 12/48 USD/EUR country/time coverage in the dataset of Boz et al. (2022) 75 100 75 100 25 50 75 100 Share of world exports 50 50 25 25 0 0 0 1990 1995 2000 2005 2010 2015 1990 1995 2000 2005 2010 2015 Number of countries (lhs) All countri
Slide 20: Share of exports by US/EA invoiced in USD/EUR
EUR vs. USD: ‘Markets’ Stylised facts on USD and EUR invoicing 13/48 Share of exports accounted for by US/EA and invoiced in USD/EUR 20 40 60 80 100 20 40 60 80 100 PRY COD AZELBR TLS MDV AGO SUR ARGBGD KHMECU DZA CRI COL UZB MOZ USD export invoicing share BRABLZ EUR export invoicing share MWI SAU G
Slide 21: Global trade and invoicing currency shares over time
EUR vs. USD: ‘Markets’ Stylised facts on USD and EUR invoicing 14/48 Global trade and invoicing currency shares over time Export shares Invoicing currency shares 75 75 50 50 Percent Percent 25 25 0 0 2000 2005 2010 2015 2000 2005 2010 2015 Share of X to RoW (lhs)/in Other (rhs) Share of X to EA (lhs
Slide 22: Agenda: Regression results
EUR vs. USD: ‘Markets’ Regression results 15/48 1 EUR vs. USD: ‘Markets’ EUR internationalisation Theory on the determinants of invoicing currency choice Stylised facts on USD and EUR invoicing Regression results 2 RMB vs. USD (and/or EUR): ‘Policies’ RMB internationalisation Stylised facts on RMB i
Slide 23: Theoretical predictions for invoicing currency choice
EUR vs. USD: ‘Markets’ Regression results 16/48 Theoretical predictions for invoicing currency choice USD/EUR export invoicing higher when 1. share of a country’s exports accounted for by US/EA is greater (LCP) 2. a country is integrated in cross-border input-output linkages (DCP) 3. a country is ex
Slide 24: Regression results: export invoicing shares
EUR vs. USD: ‘Markets’ Regression results 17/48 Regression results Run regressions ` Si,t = αi` + τt` + β `0 W `i,t + γ `0 Z`i,t + u`i,t (1) I ` Si,t : Share of country i’s exports invoiced in currency ` ∈ {$, e} I Z`i,t : Controls (bilateral exchange rates) I αi` , τt` : Country and time fixed effe
Slide 25: LCP in exports to US?
EUR vs. USD: ‘Markets’ Regression results 18/48 LCP in exports to US? USD EUR (1) (2) (3) (4) (5) (6) Base- No No Base- No No line EA Europe line EA Europe Share of X to US/EA in total X 0.81∗∗∗ 0.78∗∗∗ 0.95∗∗∗ 0.27∗∗∗ 0.19∗∗ 0.12∗∗∗ (0.00) (0.00) (0.00) (0.00) (0.01) (0.00) Share of X to non-US USD
Slide 26: LCP in exports to EA?
EUR vs. USD: ‘Markets’ Regression results 19/48 LCP in exports to EA? USD EUR (1) (2) (3) (4) (5) (6) Base- No No Base- No No line EA Europe line EA Europe Share of X to US/EA in total X 0.81∗∗∗ 0.78∗∗∗ 0.95∗∗∗ 0.27∗∗∗ 0.19∗∗ 0.12∗∗∗ (0.00) (0.00) (0.00) (0.00) (0.01) (0.00) Share of X to non-US USD
Slide 27: DCP in exports due to GVCs and strategic complementarities?
EUR vs. USD: ‘Markets’ Regression results 20/48 DCP in exports due to GVCs and strategic complementarities? USD EUR (1) (2) (3) (4) (5) (6) Base- No No Base- No No line EA Europe line EA Europe Share of X to US/EA in total X 0.81∗∗∗ 0.78∗∗∗ 0.95∗∗∗ 0.27∗∗∗ 0.19∗∗ 0.12∗∗∗ (0.00) (0.00) (0.00) (0.00)
Slide 28: PCP in imports from US?
EUR vs. USD: ‘Markets’ Regression results 21/48 PCP in imports from US? USD EUR (1) (2) (3) (4) (5) (6) Base- No No Base- No No line EA Europe line EA Europe Share of M from US/EA in total M 0.16∗ 0.01 0.24∗∗ 0.42∗∗∗ 0.19∗∗∗ 0.14∗ (0.09) (0.89) (0.01) (0.00) (0.01) (0.08) Share of M from non-US USD/
Slide 29: PCP in imports from EA?
EUR vs. USD: ‘Markets’ Regression results 22/48 PCP in imports from EA? USD EUR (1) (2) (3) (4) (5) (6) Base- No No Base- No No line EA Europe line EA Europe Share of M from US/EA in total M 0.16∗ 0.01 0.24∗∗ 0.42∗∗∗ 0.19∗∗∗ 0.14∗ (0.09) (0.89) (0.01) (0.00) (0.01) (0.08) Share of M from non-US USD/
Slide 30: The role of backward GVC integration
EUR vs. USD: ‘Markets’ Regression results 23/48 The role of backward GVC integration Results for GVC inconclusive: Does it matter in which VC a country is integrated? Run regressions ` `0 Si,t = αi` + τt` + β `0 W `i,t + b` backwGVCi,t × ωi,t + γ `0 Z`i,t + u`i,t (2) I backwGVCi,t : Country i’s back
Slide 31: GVC integration and non-European countries' USD/EUR invoicing
EUR vs. USD: ‘Markets’ Regression results 24/48 GVC integration and non-European countries’ USD/EUR invoicing USD EUR Kernel Density Estimate of m_or_x_ea_share Kernel Density Estimate of m_or_x_us_share Marginal Effect of Backward GVC integration Marginal Effect of Backward GVC integration .15 .02
Slide 32: EUR vs. USD: 'Markets' — Summary
EUR vs. USD: ‘Markets’ Regression results 25/48 EUR vs. USD: ‘Markets’ — Summary Data consistent with theoretical predictions on invoicing currency choice I PCP and LCP in trade with US/EA I Strategic complementarities and GVC integration favour DCP USD vs. EUR I Only USD emerges under DCP I EUR use
Slide 33: Agenda: EUR internationalisation
RMB vs. USD (and/or EUR): ‘Policies’ 26/48 1 EUR vs. USD: ‘Markets’ EUR internationalisation Theory on the determinants of invoicing currency choice Stylised facts on USD and EUR invoicing Regression results 2 RMB vs. USD (and/or EUR): ‘Policies’ RMB internationalisation Stylised facts on RMB invoic
Slide 34: Agenda: RMB internationalisation
RMB vs. USD (and/or EUR): ‘Policies’ RMB internationalisation 27/48 1 EUR vs. USD: ‘Markets’ EUR internationalisation Theory on the determinants of invoicing currency choice Stylised facts on USD and EUR invoicing Regression results 2 RMB vs. USD (and/or EUR): ‘Policies’ RMB internationalisation Sty
Slide 35: CHN's rise and RMB internationalisation
RMB vs. USD (and/or EUR): ‘Policies’ RMB internationalisation 28/48 CHN’s rise and RMB internationalisation CHN has become a major player in the global economy, set to take off even further Natural question whether RMB will challenge the USD (Eichengreen, 2011; Eichengreen and Lombardi, 2017) So far
Slide 36: Agenda: Stylised facts on RMB invoicing
RMB vs. USD (and/or EUR): ‘Policies’ Stylised facts on RMB invoicing 29/48 1 EUR vs. USD: ‘Markets’ EUR internationalisation Theory on the determinants of invoicing currency choice Stylised facts on USD and EUR invoicing Regression results 2 RMB vs. USD (and/or EUR): ‘Policies’ RMB internationalisat
Slide 37: RMB country/time coverage in the dataset
RMB vs. USD (and/or EUR): ‘Policies’ Stylised facts on RMB invoicing 30/48 RMB country/time coverage in the dataset of Boz et al. (2022) Imports Country−year observations Data not available 10 − 30 5 − 10 1−5 Data pending Note: The figure shows the global country coverage of our data on US dollar ex
Slide 38: RMB country/time coverage in the dataset
RMB vs. USD (and/or EUR): ‘Policies’ Stylised facts on RMB invoicing 31/48 RMB country/time coverage in the dataset of Boz et al. (2022) # of countries RMB share: All countries 50 .8 40 .6 30 .4 20 .2 10 0 2005 2010 2015 2005 2010 2015 Imports Exports Note: The figure depicts the evolution of the nu
Slide 39: Agenda: Regression results
RMB vs. USD (and/or EUR): ‘Policies’ Regression results 32/48 1 EUR vs. USD: ‘Markets’ EUR internationalisation Theory on the determinants of invoicing currency choice Stylised facts on USD and EUR invoicing Regression results 2 RMB vs. USD (and/or EUR): ‘Policies’ RMB internationalisation Stylised
Slide 40: Agenda: Regression results
RMB vs. USD (and/or EUR): ‘Policies’ Regression results 33/48 1 EUR vs. USD: ‘Markets’ EUR internationalisation Theory on the determinants of invoicing currency choice Stylised facts on USD and EUR invoicing Regression results 2 RMB vs. USD (and/or EUR): ‘Policies’ RMB internationalisation Stylised
Slide 41: Regression specification
RMB vs. USD (and/or EUR): ‘Policies’ Regression results 34/48 Regression specification Run regressions ` Si,t = αi` + τt` + β `0 W `i,t + γ `0 Z`i,t + u`i,t (3) I S` : Share of country i’s imports invoiced in currency ` ∈ {$, e, U, other} i,t I Z`i,t : Controls (GVC integration, strategic complement
Slide 42: Baseline regression results for RMB import invoicing
RMB vs. USD (and/or EUR): ‘Policies’ Regression results 35/48 Baseline regression results for RMB import invoicing (1) (2) (3) (4) USD EUR RMB Other Share of M from CH in total M 0.30∗∗ -0.11 0.02 -0.15 (0.04) (0.28) (0.16) (0.35) Within R-squared 0.26 0.34 0.24 0.09 Observations 301 301 262 301 Cou
Slide 43: Strengthening trade ties with CHN
RMB vs. USD (and/or EUR): ‘Policies’ Regression results 36/48 Strengthening trade ties with CHN 30 30 Change in share of M from CHN Change in share of X to CHN 20 20 10 10 0 0 Europe S−E/E Asia Latin America Oceania Other Note: The figure shows the average level and change in the share of countries’
Slide 44: Regression results for RMB import invoicing by region
RMB vs. USD (and/or EUR): ‘Policies’ Regression results 37/48 Regression results for RMB import invoicing by region (1) (2) (3) (4) USD EUR RMB Other Share of M from CH in total M x Europe dummy -0.66∗∗ 1.36∗∗∗ -0.06∗∗∗ -0.94∗∗∗ (0.01) (0.00) (0.00) (0.00) x S-E/E Asia dummy 0.65∗∗∗ -0.24∗∗ 0.10∗∗∗
Slide 45: Strengthening trade ties with CHN: 'Policies' — Summary
RMB vs. USD (and/or EUR): ‘Policies’ Regression results 38/48 Strengthening trade ties with CHN: ‘Policies’ — Summary European countries I Greater EUR invoicing I At expense of USD and other currencies SE/E Asian and Oceanian countries I Greater USD and RMB invoicing I At expense of other currencies
Slide 46: Agenda: Regression results
RMB vs. USD (and/or EUR): ‘Policies’ Regression results 39/48 1 EUR vs. USD: ‘Markets’ EUR internationalisation Theory on the determinants of invoicing currency choice Stylised facts on USD and EUR invoicing Regression results 2 RMB vs. USD (and/or EUR): ‘Policies’ RMB internationalisation Stylised
Slide 47: PBoC swap lines and RMB invoicing
RMB vs. USD (and/or EUR): ‘Policies’ Regression results 40/48 PBoC swap lines and RMB invoicing PBoC has signed 40+ swap agreements with other central banks Direction Générale du Trésor (2018) as well as Bahaj and Reis (2020) Stated objective: Facilitate RMB trade settlement People’s Bank of China (
Slide 48: RMB invoicing for countries with and without PBoC swap line
RMB vs. USD (and/or EUR): ‘Policies’ Regression results 41/48 RMB invoicing for countries with and without PBoC swap line RMB share: With PBoC swap line RMB share: W/o PBoC swap line .4 .4 .3 .3 .2 .2 .1 .1 0 0 2005 2010 2015 2005 2010 2015 Imports Exports Note: The figure depicts the evolution of t
Slide 49: RMB invoicing before and after PBoC swap line establishment
RMB vs. USD (and/or EUR): ‘Policies’ Regression results 42/48 RMB invoicing before and after PBoC swap line establishment RMB share # of countries 15 0 .1 .2 .3 .4 .5 10 5 0 −7 −5 −3 −1 1 3 5 7 −7 −5 −3 −1 1 3 5 7 Years before/after swap line established Years before/after swap line established Impo
Slide 50: Regressions for PBoC swap lines and RMB invoicing
RMB vs. USD (and/or EUR): ‘Policies’ Regression results 43/48 Regressions for PBoC swap lines and RMB invoicing Run regressions ` = αi` + τt` + b` PBoCSwapi,t × ωi,t CHN + γ `0 Z`i,t + u`i,t Si,t (4) I ` Si,t : Share of country i’s imports invoiced in currency ` ∈ {$, e, U} I PBoCSwapi,t : PBoC swap
Slide 51: Results for PBoC swap lines and RMB import invoicing
RMB vs. USD (and/or EUR): ‘Policies’ Regression results 44/48 Results for PBoC swap lines and RMB import invoicing Kernel Density Estimate of x_or_m_ch_share .06 Marginal Effect of Swap line with PBoC 4 on Share of M invoiced in RMB .04 2 .02 −2 0 0 0 10 20 30 40 Share of M from CH in total M Note:
Slide 52: Results for swap lines and USD/EUR import invoicing
RMB vs. USD (and/or EUR): ‘Policies’ Regression results 45/48 Results for PBoC swap lines and USD/EUR import invoicing USD imports EUR imports Kernel Density Estimate of x_or_m_ch_share Kernel Density Estimate of x_or_m_ch_share .08 .08 Marginal Effect of Swap line with PBoC Marginal Effect of Swap
Slide 53: PBoC swap lines and RMB invoicing: 'Policies' — Summary
RMB vs. USD (and/or EUR): ‘Policies’ Regression results 46/48 PBoC swap lines and RMB invoicing: ‘Policies’ — Summary PBoC swap lines associated with greater RMB invoicing but only for countries with strong trade ties with CHN RMB invoicing associated with PBoC swap lines at the expense of USD and E
Slide 54: Agenda: Conclusion
Conclusion 47/48 1 EUR vs. USD: ‘Markets’ EUR internationalisation Theory on the determinants of invoicing currency choice Stylised facts on USD and EUR invoicing Regression results 2 RMB vs. USD (and/or EUR): ‘Policies’ RMB internationalisation Stylised facts on RMB invoicing Regression results Str
Slide 55: Conclusion
Conclusion 48/48 Conclusion EUR vs. USD: ‘Markets’ I Europe’s GVC integration and trade integration have held up EUR invoicing and limited USD dominance I Will European integration deepen further, stall or recede? RMB vs. USD/EUR: ‘Policies’ I Rising RMB invoicing as trade ties with CHN strengthen m
Slide 56: References
48/48 Bacchetta, P., van Wincoop, E., 2005. A Theory of the Currency Denomination of International Trade. Journal of International Economics 67, 295–319. Bahaj, S., Reis, R., 2020. Jumpstarting an International Currency. CEPR Discussion Paper 14793. Boz, E., Casas, C., Georgiadis, G., Gopinath, G.,
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