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Will the U.S. Dollar Continue to Dominate World Trade?

There are around 180 currencies in the world, but only a very small number of them play an outsized role in international trade, finance, and central bank…



Mary Amiti, Oleg Itskhoki, and Jozef Konings

There are around 180 currencies in the world, but only a very small number of them play an outsized role in international trade, finance, and central bank foreign exchange reserves. In the modern era, the U.S. dollar has a dominant international presence, followed to a lesser extent by the euro and a handful of other currencies. Although the use of specific currencies is remarkably stable over time, with the status of dominant currencies remaining unchanged over decades, there have been decisive shifts in the international monetary system over long horizons. For example, the British pound only lost its dominant currency status in the 1930s, well after Britain stopped being the leading world economy. In a new study, we show that the currency that is used in international trade transactions is an active firm-level decision rather than something that is just fixed. This finding raises the question of what factors could augment or reduce the U.S. dollar’s dominance in world trade.

Dominant Currencies

We use a unique data set covering Belgian trade with all countries—unique in that it comprises information on the currency of invoicing as well as firm characteristics. The data show that while the U.S. dollar accounts for a disproportionate share of international trade, a small subset of other currencies is also actively used in international trade alongside the U.S. dollar—most notably the euro but also to a lesser extent the Japanese yen, the British pound, the Swiss franc, and the Chinese yuan. These patterns are shown in the chart below, which plots the dollar and the euro share of trade for Belgian exports in the left panel and Belgian imports in the right panel. Each circle corresponds to a separate country outside the EU, and the size of the circle depicts the country’s share of total Belgian trade. The fact that most circles lie on the negative diagonal reflects the dominance of the combined use of the dollar and the euro in trade invoicing with virtually every trade partner.

The Euro and the U.S. Dollar Are the Dominant Currencies in Belgian Bilateral Trade

Sources: National Bank of Belgium; authors’ calculations.
Notes: Each dot represents the share of trade invoiced in dollars (vertical axis) and the share in euros (horizontal axis). The left panel shows exports; the right panel shows imports.

A distinctive feature of dominant currencies is that the same currency is equally prevalent in both imports and exports; this feature is common to both the dollar and the euro. These patterns are at odds with standard international macro models that assume countries adopt either the destination currency or the source currency, with the role of many currencies roughly proportional to their country’s role in world trade. In light of this, new economic models incorporate the role of dominant currencies.

It is important to note a clear distinction between different dominant currencies: the dollar is in many cases also a “vehicle” currency—meaning it is not used domestically by either the importing or exporting country—while this is less common for the euro. One can thus think of the dollar as the global dominant currency and of the euro as the regional dominant currency. Indeed, the dollar plays an outsized role relative to the U.S. trade share. However, when comparing the value share of dollar invoicing with the trade share of U.S. and dollar-pegged countries, the use of the U.S. dollar does not appear to be an outlier relative to the use of the euro.

Currency Invoicing Is an Active Firm Choice

Our research shows that the currency choice in exporting depends on firm size, the share of inputs imported from outside the euro zone, and what the exporters’ competitors choose in each destination, referred to as strategic complementarities. Larger and more import-intensive firms are more likely to deviate from pricing in euros and choose foreign-currency pricing of exports. The chart below illustrates this pattern, showing  a steep gradient in the use of currencies across firms of different size. Smaller Belgian exporters use euros almost entirely in their ex-EU exports. In contrast, larger exporters use the dollar, and the largest firms occasionally price in the destination currency.

Larger Firms Are More Likely to Choose the Destination Currency

Sources: National Bank of Belgium; authors’ calculations.
Note: Red bars represent the share of exports invoiced in euros (in other words, producer currency pricing, PCP); dark and light blue bars reflect the share invoiced in dollars (DCP), with light blue identifying dollar invoicing in exports to dollar-pegged destinations; gray bars refer to local (destination) currency pricing (LCP).

In addition, our results show that firms that rely more on imported inputs, in particular those invoiced in dollars, are more likely to adopt the dollar in export pricing, while larger firms are more likely to adopt the destination currency. Firms with cross-border ownership, arguably proxying for their participation in global value chains, are more likely to invoice in dollars. We also provide direct evidence of strategic complementarities in currency choice, whereby the currency used by the firm’s competitors has a strong impact on the firm’s own currency choice.

Why Currency Choice Matters

At the country level, optimal exchange rate policy involves stabilizing the producer price index, taking into account foreign inputs that affect producer prices. This results in a fixed point, whereby pegging to the dollar at the country level compels more exports, at home and abroad, to adopt dollar pricing, and in turn dollar pricing in a country’s exports and imports compels the country to adopt dollar pegging. This results in a strategic complementarity at the macroeconomic level for the use of the dollar in global trade and monetary anchoring.

The firm’s currency choice is, in turn, a key determinant of the exchange rate pass-through into prices and quantities. A large literature has shown that exchange rate pass-through into destination prices is incomplete when exports are invoiced in a foreign currency. Our identification strategy relies on comparing firms with similar characteristics that choose to price in different currencies for idiosyncratic reasons, thus isolating the effect of the firm’s currency choice on pass-through. Furthermore, our inference is based on the differential response of firms to the same exchange rate shocks in the same equilibrium environment, thus excluding confounding macroeconomic variation.

In the chart below, we plot the exchange rate pass-through into Belgian firms’ export prices at horizons from four months to twenty-four months. The euro exchange rate pass-through for firms that invoice in euros (PCP firms) is shown in gold, indicating 100 percent pass-through (equal to 1 on the vertical axis), while the pass-through of non-euro pricing firms is incomplete and gradually increases over time (blue line). In turn, the dollar exchange rate pass-through for dollar pricing firms is high and gradually decreasing (red line). Our dynamic estimates indicate an expected price duration of nearly ten months, which implies that about a third of export prices have not yet been adjusted a year after the shock.

Exchange Rate Pass-Through into Prices Is Higher for Pricing in Euros

Sources: National Bank of Belgium; authors’ calculations.
Note: The chart plots regression coefficients reflecting exchange rate pass-through (ERPT) at different horizons by currency of pricing for euro-destination and dollar-destination exchange rates. 

Finally, the cross-currency differential pass-through into prices translates into consistent differences in the response of quantities, with an estimated negative export quantity elasticity of around 1.5 for all goods and over 2 for differentiated goods, in line with other macroeconomic estimates of this elasticity. This establishes the allocative effects of sticky prices in the endogenously chosen currency of invoicing. The quantities, however, take time to adjust, with the effects becoming significant only about a year after the shock, suggesting a role for quantity adjustment frictions in addition to price stickiness.

Macroeconomic Implications of Currency Choice

These results have broad macroeconomic implications. In particular, they emphasize the forces that could augment or reduce the dollar’s dominant role in world trade. One possibility that would augment its role is that the U.S. dollar strengthens its position as the dominant global currency. This could happen with greater globalization of production and more intensive reliance on global value chains, as our results show that cross-border foreign direct investment—a proxy for global value chains—is associated with more U.S. dollar currency invoicing. This would render exchange rates less relevant as determinants of relative prices and expenditure-switching in the global supply chain.

A possibility that could reduce the dollar’s dominance is the fragmentation and localization of production chains, for example in response to a global pandemic shock or to geopolitical competition (“friend-shoring”), with more intensive regional trade and greater barriers to cross-regional trade. This, in turn, may increase the expenditure-switching role of bilateral exchange rate movements, at least if an equilibrium with multiple trade currencies emerges as a result of such fragmentation.

Alternatively, a shift in the exchange rate anchoring policies of the major trade partners, such as China, could trigger a long-run shift in the equilibrium environment. If China were to freely float its exchange rate, encouraging Chinese exporters to price more intensively in renminbi, the equilibrium environment would change for exporting firms around the world. In particular, this would alter both the dynamics of prices in the input markets as well as the competitive environment in the output markets across many industries. As our results show, the currency in which a firm’s imports are invoiced and the currency in which its competitors price are key determinants of an exporting firm’s currency choice, and hence this shift could dramatically change the optimal invoicing patterns for exporting firms. This, in turn, may lead monetary authorities across the world to further adjust their nominal anchoring and realign their exchange rate management policies, changing further the equilibrium in the international monetary system away from the dominance of the dollar.

Mary Amiti is the head of Labor and Product Market Studies in the Federal Reserve Bank of New York’s Research and Statistics Group.

Oleg Itskhoki is a professor of economics at the University of California, Los Angeles

Jozef Konings is a professor in economics and director of research at the Nazabayev University Graduate School of Business, and a professor of economics at KU Leuven.

The views expressed in this post are those of the author(s) and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author(s).

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Repeated COVID-19 Vaccination Weakens Immune System: Study

Repeated COVID-19 Vaccination Weakens Immune System: Study

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

Repeated COVID-19…



Repeated COVID-19 Vaccination Weakens Immune System: Study

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

Repeated COVID-19 vaccination weakens the immune system, potentially making people susceptible to life-threatening conditions such as cancer, according to a new study.

A man is given a COVID-19 vaccine in Chelsea, Mass., on Feb. 16, 2021. (Joseph Prezioso/AFP via Getty Images)

Multiple doses of the Pfizer or Moderna COVID-19 vaccines lead to higher levels of antibodies called IgG4, which can provide a protective effect. But a growing body of evidence indicates that the “abnormally high levels” of the immunoglobulin subclass actually make the immune system more susceptible to the COVID-19 spike protein in the vaccines, researchers said in the paper.

They pointed to experiments performed on mice that found multiple boosters on top of the initial COVID-19 vaccination “significantly decreased” protection against both the Delta and Omicron virus variants and testing that found a spike in IgG4 levels after repeat Pfizer vaccination, suggesting immune exhaustion.

Studies have detected higher levels of IgG4 in people who died with COVID-19 when compared to those who recovered and linked the levels with another known determinant of COVID-19-related mortality, the researchers also noted.

A review of the literature also showed that vaccines against HIV, malaria, and pertussis also induce the production of IgG4.

“In sum, COVID-19 epidemiological studies cited in our work plus the failure of HIV, Malaria, and Pertussis vaccines constitute irrefutable evidence demonstrating that an increase in IgG4 levels impairs immune responses,” Alberto Rubio Casillas, a researcher with the biology laboratory at the University of Guadalajara in Mexico and one of the authors of the new paper, told The Epoch Times via email.

The paper was published by the journal Vaccines in May.

Pfizer and Moderna officials didn’t respond to requests for comment.

Both companies utilize messenger RNA (mRNA) technology in their vaccines.

Dr. Robert Malone, who helped invent the technology, said the paper illustrates why he’s been warning about the negative effects of repeated vaccination.

“I warned that more jabs can result in what’s called high zone tolerance, of which the switch to IgG4 is one of the mechanisms. And now we have data that clearly demonstrate that’s occurring in the case of this as well as some other vaccines,” Malone, who wasn’t involved with the study, told The Epoch Times.

So it’s basically validating that this rush to administer and re-administer without having solid data to back those decisions was highly counterproductive and appears to have resulted in a cohort of people that are actually more susceptible to the disease.”

Possible Problems

The weakened immune systems brought about by repeated vaccination could lead to serious problems, including cancer, the researchers said.

Read more here...

Tyler Durden Sat, 06/03/2023 - 22:30

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Study Falsely Linking Hydroxychloroquine To Increased Deaths Frequently Cited Even After Retraction

Study Falsely Linking Hydroxychloroquine To Increased Deaths Frequently Cited Even After Retraction

Authored by Jessie Zhang via Thje Epoch…



Study Falsely Linking Hydroxychloroquine To Increased Deaths Frequently Cited Even After Retraction

Authored by Jessie Zhang via Thje Epoch Times (emphasis ours),

An Australian and Swedish investigation has found that among the hundreds of COVID-19 research papers that have been withdrawn, a retracted study linking the drug hydroxychloroquine to increased mortality was the most cited paper.

Hydroxychloroquine sulphate tablets. (Memories Over Mocha/Shutterstock)

With 1,360 citations at the time of data extraction, researchers in the field were still referring to the paper “Hydroxychloroquine or chloroquine with or without a macrolide for treatment of COVID-19: a multinational registry analysis” long after it was retracted.

Authors of the analysis involving the University of Wollongong, Linköping University, and Western Sydney Local Health District wrote (pdf) that “most researchers who cite retracted research do not identify that the paper is retracted, even when submitting long after the paper has been withdrawn.”

“This has serious implications for the reliability of published research and the academic literature, which need to be addressed,” they said.

Retraction is the final safeguard against academic error and misconduct, and thus a cornerstone of the entire process of knowledge generation.”

Scientists Question Findings

Over 100 medical professionals wrote an open letter, raising ten major issues with the paper.

These included the fact that there was “no ethics review” and “unusually small reported variances in baseline variables, interventions and outcomes,” as well as “no mention of the countries or hospitals that contributed to the data source and no acknowledgments to their contributions.”

A bottle of Hydroxychloroquine at the Medicine Shoppe in Wilkes-Barre, Pa on March 31, 2020. Some politicians and doctors were sparring over whether to use hydroxychloroquine against the new coronavirus, with many scientists saying the evidence is too thin to recommend it yet. (Mark Moran/The Citizens’ Voice via AP)

Other concerns were that the average daily doses of hydroxychloroquine were higher than the FDA-recommended amounts, which would present skewed results.

They also found that the data that was reportedly from Australian patients did not seem to match data from the Australian government.

Eventually, the study led the World Health Organization to temporarily suspend the trial of hydroxychloroquine on COVID-19 patients and to the UK regulatory body, MHRA, requesting the temporary pause of recruitment into all hydroxychloroquine trials in the UK.

France also changed its national recommendation of the drug in COVID-19 treatments and halted all trials.

Currently, a total of 337 research papers on COVID-19 have been retracted, according to Retraction Watch.

Further retractions are expected as the investigation of proceeds.

Tyler Durden Sat, 06/03/2023 - 17:30

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Complying, Not Defying: Twitter And The EU Censorship Code

Complying, Not Defying: Twitter And The EU Censorship Code

Authored by ‘Robert Kogon’ via The Brownstone Institute,

So, word has it that…



Complying, Not Defying: Twitter And The EU Censorship Code

Authored by 'Robert Kogon' via The Brownstone Institute,

So, word has it that Twitter has withdrawn from the EU’s Code of Practice on Disinformation, a fact that appears only to be known thanks to a couple of pissy tweets from EU officials. I cannot help but wonder if this is not finally Elon Musk’s response to the question I asked in my article here several weeks ago: namely, how can a self-styled “free-speech absolutist” be part of a “Permanent Task-Force on Disinformation” that is precisely a creation of the EU’s Code?

But does it matter? The answer is no. The withdrawal of Twitter’s signature from the Code is a highly theatrical, but essentially empty gesture, which will undoubtedly serve to shore up Musk’s free speech bad-boy bona fides, but has virtually no practical consequences. 

This is because: (1) as I have discussed in various articles (for instance, here and here), the effect of the EU’s Digital Services Act (DSA) is to render the hitherto ostensibly voluntary commitments undertaken in the Code obligatory for all so-called Very Large Online Platforms (VLOPs) and (2) as discussed here, the European Commission just designated a whole series of entities as VLOPs that were never signatories of the Code.

Twitter is thus in no different a position than Amazon, Apple and Wikipedia, none of which were ever signatories of the Code, but all of which will be expected by the EU to comply with its censorship requirements on the pain of ruinous fines. 

As EU officials like to put it, the DSA transformed the “code of practice” into a code of conduct: i.e. you had better do it or else.

Compliance is thus not a matter of a signature. The proof of the pudding is in the eating. And the fact of the matter is that Musk and Twitter are complying with the EU’s censorship requirements. Much of the programming that has gone into the Twitter algorithm is obviously designed for this very purpose.

What, for instance, are the below lines of code?

They are “safety labels” that have been included in the algorithm to restrict the visibility of alleged “misinformation.” Furthermore – leaving aside the handy “generic misinfo” catch-all – the general categories of “misinformation” used exactly mirror the main areas of concern targeted by the EU in its efforts to “regulate” online speech: “medical misinfo” in the context of the COVID-19 pandemic, “civic misinfo” in the context of issues of electoral integrity, and “crisis misinfo” in the context of the war in Ukraine.

Indeed, as Elon Musk and his lawyers certainly know, the final version of the DSA includes a “crisis response mechanism,” (Art. 36) which is clearly modeled on the European Commission’s initially ad hoc response to the Ukraine crisis and which requires platforms to take special measures to mitigate crisis-related “misinformation.” 

In its January submission to the EU (see reports archive here), in the section devoted precisely to its efforts to combat Ukraine-war-related “misinformation,” Twitter writes (pp. 70-71): 

“We … use a combination of technology and human review to proactively identify misleading information. More than 65% of violative content is surfaced by our automated systems, and the majority of remaining content we enforce on is surfaced through regular monitoring by our internal teams and our work with trusted partners.”

How is this not compliance? Or at least a very vigorous effort to achieve it? And the methodology outlined is presumably used to “enforce on” other types of “mis-“ or “disinformation” as well.

Finally, what is the below notice, which many Twitter users recently received informing them that they are not eligible to participate in Twitter Ads because their account as such has been labeled “organic misinformation?”

Why in the world would Twitter turn away advertising business? The answer is simple and straightforward: because none other than the EU’s Code of Practice on Disinformation requires it to do so in connection with the so-called “demonetization of disinformation.” 

Thus, section II(d-f) of the Code reads:

(d) The Signatories recognise the need to combat the dissemination of harmful Disinformation via advertising messages and services.

(e) Relevant Signatories recognise the need to take granular and tailored action to address Disinformation risks linked to the distribution of online advertising. Actions will be applicable to all online advertising.

(f) Relevant Signatories recognise the importance of implementing policies and processes not to accept remuneration from Disinformation actors, or otherwise promote such accounts and websites.

So, in short, vis-à-vis the EU and its Code, Twitter is complying, not defying. Removing Twitter’s signature from the Code when its signature is no longer required on the Code anyway is not defiance. Among other things, not labeling content and/or users as “misinformation,” not restricting the visibility of content and/or users so labeled, and accepting advertising from whomever has the money to pay would be defiance.

But the EU’s response to such defiance would undoubtedly be something more than tweets. It would be the mobilization of the entire punitive arsenal contained in the DSA and, in particular, the threat or application of the DSA fines of 6 percent of the company’s global turnover.

It is not enough to (symbolically) withdraw from the Code of Practice to defy the EU. Defying the EU would require Twitter to withdraw from the EU altogether.

Tyler Durden Sat, 06/03/2023 - 10:30

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