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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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Five things you can do to help you have a more positive birth experience

Becoming a parent can be nerve-wracking – but there are many things you can do to feel more in control.



Don't be afraid to make your preferences clear to your care provider. Syda Productions/ Shutterstock

Whether you’re a first time parent or have had children before, you’re probably willing to try anything to ensure you have the most positive birth experience you can. After all, the kind of birth experience you have can not only affect your own mental health, but can have an affect on parent-child bonding, as well as partner-to-partner relationships for years after giving birth.

It can be confusing to know what to expect or where to turn to for advice, especially as maternity services have changed due to falling staff numbers and the continued impact of COVID-19. But here are a few things you can do yourself as you navigate your maternity care, which may help you have a more positive birth experience:

1. Get educated

Studies have shown that signing up for antenatal classes can help reduce fear, depression and anxiety – both during pregnancy and after birth.

Typically, antenatal classes will help you understand what’s happening to your body during pregnancy and explain the birth process. They may also teach you coping strategies to help relax during labour, alongside guidance on caring for your new baby. Antenatal classes can also be a great way of meeting other parents going through the same thing as you.

Another option is creating a personalised care and support plan, which is offered by most NHS trusts in the UK. This is a tool you can use with your care providers to explore what’s important to you – and discuss what your range of options are, such as your preferred place of birth, or whether you prefer skin-to-skin contact with your baby immediately after birth.

Understanding what your body’s going through, and making a personalised plan for your birth, may help you feel more prepared and less anxious about what to expect.

2. Know your carers

Being cared for by one nominated midwife, or being assigned to a team of familiar midwives, is shown to be associated with better outcomes for you and your baby – including decreased chance of having a premature labour and lower likelihood of needing interventions (such as birth with the help of forceps). You’re also more likely to be satisfied with your overall experience.

When an allocated midwife is not an option this makes choosing the right birth partners crucial. They can not only offer you reassurance, encouragement and support but can be your advocate, help you try different positions in labour and help provide you with snacks and drinks. Most typically these would be trusted loved ones. But be aware that research shows birth partners may also feel anxious or overwhelmed at taking on this role, and may struggle with seeing a loved one in pain – so it’s important to be realistic about your expectations, and choose the right person. It may be the best birth partner for you is a close friend or relative.

3. Challenge care recommendations if you aren’t happy

There are likely to be many other options available to you – such as where you might give birth, or how you want to be cared for during labour.

During antenatal appointments be sure to pause, think and ask about benefits, risks and alternatives to the care being proposed. Research shows how important choice and personalised care are for expectant parents who want their voices and preferences to be acknowledged, and to receive consistent advice.

Expectant couple speak with female doctor in doctor's office.
Bringing a loved one or partner with you can make it easier to voice any concerns you may have. wavebreakmedia/ Shutterstock

If you have concerns over a suggestion your care providers have made or have questions, don’t be afraid to ask. Take your birth partner with you if you prefer, who can empower you to ensure your voice is heard. After all, care providers are duty bound to ensure you make fully informed choices.

4. Don’t always listen to your friends and family

Once people hear you have a baby on the way it seems everyone feels the need, without asking, to tell you the full (and often graphic) details of their own children’s birth.

But it’s perfectly acceptable to politely change the subject if you don’t want to listen, or if hearing these stories makes you nervous or worry. It’s also worth remembering that each person has a different labour and birth, even with their own children – so what was true for someone else is likely not to be the same for you. While it can be helpful for some people to debrief after the birth, it’s okay to avoid hearing this yourself if it makes your nervous, and maybe suggest they speak with a professional about their experience instead of telling you.

5. Visit your preferred place of birth

Many maternity units are now opening up their doors again to tours and informal visits – and those that aren’t are doing this virtually.

Becoming familiar with where you might give birth – even down to where you might park on the day – can help you feel more confident about giving birth. It may also remove some of the unknown, helping you regain a sense of control – which in itself is linked to a more positive birth experience.

For those planning a homebirth, speak to your midwife about how you can improve your space to facilitate the most safe and positive experience. For one of the most important days of your life, visualising where this will take place ahead of time can help you feel more confident and in control.

Ultimately, it’s important to remember that no one can predict exactly how your labour and birth journey will go. Even after heeding the above steps – there’s always a chance you may need to consider a plan B, C or even D. But no matter what, remember you’ve done your very best, and you’re not likely to repeat this exact experience the next time.

Claire Parker does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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Is it safe to buy WTI crude oil after bouncing from horizontal support?

A lot has happened in the energy markets in 2022, especially in the oil markets. WTI crude oil price surged to $130 in the second quarter of the year,…



A lot has happened in the energy markets in 2022, especially in the oil markets. WTI crude oil price surged to $130 in the second quarter of the year, after only in 2020 it had traded in negative territory.

Futures contracts settle daily, and back in 2020, during the COVID-19 pandemic, when demand for oil declined sharply, clearinghouses let the futures contracts settle below zero for the first time ever.

Since then, however, the market has bounced dramatically. Few traders have bet on energy prices, especially because in the last years, the rise of the ESG meant many investments fleeing the energy field.

But supply chain issues, monetary and fiscal stimulus during the pandemic, and the Russian invasion of Ukraine are major drivers in the energy space. After reaching $130/barrel, the WTI crude oil price has corrected but found strong support at the $100/barrel area.

The recent bounce in the last few days came from Macron’s comments during the G7 meeting. He said that the United Arab Emirates does not have spare capacity to produce more oil, something confirmed yesterday by the UAE authorities.

UAE is producing at maximum capacity based on its OPEC+ agreements. Therefore, the price of oil should remain bid on every dip.

A triangular pattern forms on the daily chart

The technical picture looks bullish while the price remains above horizontal support seen at the $100/barrel. Moreover, a confluence area given by both horizontal and dynamic support made it difficult for the market to extend its decline.

As such, a triangular pattern suggests more upside in the price of oil. A triangle may act as both a continuation and a reversal pattern, and traders focus on a breakout above or below the upper or the lower trendline.

Furthermore, every attempt to the downside since last March was met with more buying. Therefore, it is hard to argue with the bullish case, especially since the series or higher lows remains intact.

All in all, the WTI crude oil price remains bullish, and the triangular pattern may break either way. However, as long as the $100 level holds, the bias is to the upside.

The post Is it safe to buy WTI crude oil after bouncing from horizontal support? appeared first on Invezz.

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Spread & Containment

Preventing the next pandemic: Learning the lessons

In the first of a three part series, Ben Hargreaves looks at what the odds are of another
The post Preventing the next pandemic: Learning the lessons appeared…



In the first of a three part series, Ben Hargreaves looks at what the odds are of another pandemic arising in our lifetimes and what can be done to lower the risk of this happening again.

The current pandemic is still very much underway. The question is, as one study was recently entitled, whether the current phase brings the world closer to the end of the pandemic or just to the end of the first phase? What is clear is that due to vaccines and therapeutics, the critical early phase of the pandemic is over. As the article suggests, what could lie ahead is a process of learning how to live with a persistent circulation of the virus and, with this, consistent spikes of cases, likely occurring periodically and more often in the winter months.

With the current pandemic refusing to dissipate, the discussions around future pandemics become more difficult to countenance. As identified very early into the current pandemic by the WHO, there is the risk of fatigue arising over long-term global health crisis response, which becomes an issue when acknowledging that the current times we’re living through could happen again. Research has suggested that in any given year there is a 2.5 to 3.3% chance of a pandemic on the scale of COVID-19 occurring. Not only this, the expectation is that such events are becoming more likely, with estimations that the probability of outbreaks such as the current pandemic will likely grow three-fold in the next few decades.

Pharma invested

The acceptance that there will potentially be another pandemic within many people’s lifetimes underlines the importance of using the emergence of COVID-19 to better protect ourselves against the next threat. Although it’s come at a high cost, the world is now in a strong position to prepare itself, with the lessons from the current pandemic still fresh in mind.

One clear benefit is that the pharmaceutical industry has proven that it is able to develop and safely deliver vaccines in a much shorter timeframe than usual. A typical vaccine development timeline takes between five and 10 years; the vaccines approved for COVID-19 emerged much more quickly.

Though the next pandemic could prove to be a more complicated target to vaccinate against, the success of the vaccines and the financial gains that were achieved would see companies eager to engage in development. Already, the industry is seeing greater research and funding being diverted back into vaccine development, with mRNA vaccines holding particular interest. This should see a pipeline of vaccine candidates better stocked than on the emergence of COVID-19, if this can be sustained into the future.

Global governance

However, the work required to prevent the next pandemic is far broader than vaccines and therapeutics, which are essentially the last defence. In the future, the entire global health system will need to change to become more resilient, which requires many individual changes but can be broken down it smaller, logical actions that have outsized outcomes. One such action is simply coordination at the highest levels.

There were warning signs prior to COVID-19 that a pandemic could be possible, with the outbreaks of Zika and Ebola viruses, both of which have occurred intermittently for years but had attained wider notoriety after bigger outbreaks in the last decade. Despite this, coordinated efforts on the response to the current pandemic lacked cohesion – many countries adopted different methods of combatting the spread of the virus and containment. Once vaccines were on the market, countries competed against one another for access, thereby denying them to the countries without the economic firepower to match.

A recent report for the G20 group of nations, on preventing the next pandemic, concluded: “It requires establishing a global governance and financing mechanism, fitted to the scale and complexity of the challenge, besides bolstering the existing individual institutions, including the

WHO as the lead organisation. A primary one is training and hiring adequate levels of health workers.”

The report broke down four major gaps that need to be addressed, on a global and national level, to be able to respond more quickly, equitably and effectively when further pandemics occur:

  • Globally networked surveillance and research: To prevent and detect emerging infectious diseases
  • Resilient national systems: To strengthen a critical foundation for global pandemic preparedness and response
  • Supply of medical countermeasures and tools: To radically shorten the response time to a pandemic and deliver equitable global access
  • Global governance: To ensure the system is tightly coordinated, properly funded and with clear accountability for outcomes

Spending money to save money

The hiring of additional healthcare workers, the build-out of surveillance systems, support provided for R&D into infectious diseases, and the creation of a stockpile of medical countermeasures all require funds. This is a major question of the report for world leaders: Whether there is the appetite for further funding into pandemic preparation? The global economy has taken and continues to feel the financial blow of COVID-19.

However, the report calls for more public funding to be put into health in the coming years, with the authors stating that approximately 1% of GDP must be committed by low- and middle-income countries. In terms of funding for international efforts for preventing the next pandemic, the figure is estimated at $15 billion per year, sustained for the coming years. Compared to the sums spent on vaccines and therapeutics during the current pandemic, the investment is far lower and will help boost what the report calls, “a dangerously underfunded system.”

Beyond all action is a tactic for mitigating pandemics that is known as primary prevention. Fundamentally, this means going before all of the previously discussed methods to tackle the virus at the root cause.

Research has called for greater emphasis to be put on elements that prevent virus spillover, where a virus jumps species. The authors identify three areas where a difference can be made: reduced deforestation, better management of the wildlife trade and hunting, and better surveillance of zoonotic pathogens before any human is infected. The authors suggest that even a 1% reduction in risk of viral zoonotic disease emergence would make any efforts in this direction cost-effective. They end their study, stating, “Monothetic ‘magic bullets,’ including diagnostic tests, treatments, and vaccines, failed to control COVID-19 as it spread around the globe and exacted the largest health and economic toll of any pathogen in recent history. This makes plain that we cannot solely rely upon post-spillover strategies to prevent a similar fate in the future.”

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