On the periphery of the international dollar standard: Canada, Latin America, and East Asia

Abstract

This paper focuses on how the world dollar standard works in two respects. The first is the dollar as a benign facilitator of international exchange both in private and official transacting. The second is the possibility of dollar encroachment on the domestic domains of weaker currencies. But this encroachment is quite different across more mature industrial economies such as Canada with long-term bond markets in comparison to more extreme encroachment in Latin America and less extreme in East Asia where domestic bond markets barely exist. It examines the risks in alternative exchange rate regimes for emerging markets where the term to maturity of finance is short, with external liabilities all dominated in foreign exchange, largely dollars. Problems faced by central banks in regulating money and exchange rates, and bank regulators in limiting default risks, are jointly considered.