Reserve Currency Research Articles

Forecasting The Demand for Gold in India: An Analysis of Historical Time-Series Data

Gold has been an integral part of Indian culture and tradition for centuries. India is one of the largest consumers and importers of gold in the world, with gold demand primarily driven by weddings, festivals and religious ceremonies. In recent years, gold has also emerged as an investment asset class with people investing in gold for long-term gain and to hedge against inflation. Gold is also considered as a safe haven asset and is often used as a store of value during economic and political uncertainties. Almost all the central banks hold gold as a crucial part of their foreign currency reserve. Hence forecasting the demand for gold becomes essential to make informed investment decisions, management of reserves by the institutions etc. This study aims to forecast the demand for gold on the basis of the recent trends and patterns of demand for gold in India in the last five years (2017-2021). The researcher analysed historical data on gold from various sources and examined the trends over time. The study used the linear trend analysis method to create a linear equation that predicted future gold demand based on past gold demand trends. The results obtained by this research can be applied by the investors, goldsmiths and government; in various contexts, including investment and commodity trading to make informed decisions.

The Rising Impacts of the COVID-19 Pandemic and Ukraine Conflict: Inflation and Energy Crisis

This paper examines the inflation and energy crises in various countries during the epidemic and the Russia-Ukraine conflict. This paper focuses on the fluctuations of inflation and energy CPI indices in the European market, the US market, and the Chinese market during the epidemic and under the influence of the Russia-Ukraine conflict. Through research and studies, it found that the Russian-Ukrainian conflict was the direct cause of high inflation in the European economy and the epidemic had less impact on the European market. However, the situation in the US market is very different. The US market was mainly affected by the epidemic and was less affected by the Russian-Ukrainian conflict. Finally, the epidemic had a relatively large impact on the inflation rate in China and the Russian-Ukrainian conflict had a minor impact on the Chinese market. Ukraine conflict may contribute to the dangerous divergence between advanced and emerging market and developing economies. More broadly, it risks fragmenting the global economy into geopolitical blocs with distinct technology standards, cross-border payment systems, and reserve currencies.

BRICS-Plus: the New Force in Global Governance

The global economy is currently experiencing unprecedented changes as the BRICS nations establish themselves as a signifi cant power center and a crucial factor in the transformation of the international economic framework. Following China’s chairmanship of BRICS, which culminated in the BRICS+ meetings with a diverse range of emerging market economies, these and other countries have expressed their desire to join the BRICS group. The expansion process was largely catalyzed by the openness exhibited by BRICS through the BRICS+ format. The main question at this juncture is how the BRICS+ format will develop and whether it can enhance the position of BRICS in the global arena and among the Global South. This paper explores some of the opportunities presented by the BRICS+ concept in the creation of new global governance, particularly through the establishment of platforms – including those in the real sector and fi nancial platforms aimed at promoting greater cooperation among the sovereign wealth funds and regional development banks of the Global South. Another critical area is the launch of a new reserve currency that could serve as the foundation for greater economic integration across the broad platform of the developing world.

Exorbitant privilege and fiscal autonomy

AbstractAn aspect of the ‘exorbitant privilege’ we examine in this paper is the ability of the reserve currency issuer to run expansionary fiscal policies to stabilize the economy when a negative shock occurs without triggering an adverse reaction of foreign lenders, including, in particular, higher interest rates imposed by global capital markets. To explore this ‘privilege’ we look at the G7, a group of advanced economies that enjoy larger fiscal space than other countries. We estimate a panel regression model to explain the differences in magnitude of fiscal policy responses to common shocks as a function of countries’ reserve currency status. We find that, indeed, the prevalence of this channel is not rejected by the data and that in fact it seems to have become stronger over time, supported by the global build-up of currency reserves.

The role of China in the international financial system

AbstractChina’s interaction with the international financial system is driven by its growing economic importance in the world. However, China’s financial influence has been much under-presented compared with its economic power. This mismatch provides an opportunity for China to promote greater inclusiveness and better balance of power in global financial governance. The accelerated financial opening-up, exchange-rate flexibility, and deepened domestic reform also nourished the ambition of internationalization of the renminbi that would have impact on the global reserve currency system. This paper investigates the motivations behind China’s engagements with the international financial system, the approaches China adopted to achieve its goals, and the key domestic policies required for China to gain more weight in the global financial market.

A parsimonious model of trade, finance and endogenous currency choices in international reserves

We provide a parsimonious model with two international currencies (dollar and quasi-dollar) to examine the endogenous linkage among trade invoicing, bank funding and optimal currency choices in central banks’ international reserves. We find that (1) when the exchange rate volatility is high, an increase in dollar debt share would lead central banks to hold a larger dollar share in international reserves; (2) when exchange rates of dollar and quasi-dollar move in the same direction, they tend to cut dollar share in reserve holdings. We test these predictions using a newly-available foreign exchange reserve currency composition dataset and find considerable support.

Applying Taylor Rule in a Heterogeneous Currency Union: Case of UMAC

Our objective is to show that the Taylor rule is the monetary policy practice of BEAC its effectiveness is limited due to the structural and cultural heterogeneity of the currency union. In this light, we identify the reaction function of BEAC show that it includes additional variables namly, the interest rate and inflation differential with the Euro zone, as well as the currency reserve ratio that must cover at least 20% monetary issue. Given the objectives and instruments used and the reaction function built, we estimate a forward-looking Taylor rule using the GMM, similar to the one proposed by Clarida et al. (2000) and find that the interest rate setting of BEAC could be captured using a Taylor rule. From our estimations using the we actually find that BEAC’s monetary policy or more precisely its interest rate setting can be effectively captured using a modified Taylor rule taking into consideration the specificities of the monetary union and external constraint despite the heterogeneous nature of the union. As seen from the results obtained we can realize that the Central Bank mainly focuses on the fight against inflation and mainly strives at maintaining internal stability in the sub region. This fight can be deemed successful given the low inflation results that are observed in our period of study, even though it can be mitigated with the influence of the region of anchor (the Euro zone) in this stability

Impact of Geopolitical Tension on the World Economy and the Economy of Kazakhstan

This article attempts to assess the impact of geopolitical tension on the world economy, trade, including the Kazakh economy. Geopolitical tensions hit the global economy when the recovery from the COVID-19 pandemic was underway, and strong inflationary pressures had already emerged. The consequences of this tension affect the economies of countries around the world. First, the impact affects commodity prices. Secondly, trade flows have been destabilized, the supply chain has been disrupted, and there are serious consequences for the countries of the Caucasus, Central Asia, Eastern Europe and the Baltic States, as well as other countries. Thirdly, as a result of the weakening of the economies of many countries, financial conditions have tightened. Due to the increase in prices for energy, goods and food, global inflation intensified in many countries. The volume of global trade in goods and services decreased by 3.4 percent from October 2021 to October 2022, which means a global trade deficit of about $1 trillion per a year. Energy prices have risen by about 100 percent, while non-energy prices have risen by only 8 percent on average. As a result, there is a danger that the world economy may be divided into separate economic blocs with different ideologies, political systems, technological standards, systems of cross-border payments and trade and reserve currencies. Key words: geopolitical tension, risks, contradictions, economy, trade, Kazakhstan.

On the rationale and implications of China’s RMB internationalization: A global historical perspective

AbstractThis article addresses two interrelated questions pertaining to the Communist Party of China’s (CPC) attempt to internationalize the Chinese currency – the renminbi (RMB). First, what is the historical rationale of RMB internationalization, and what are its implications? Second, how does the rationale for, and implications of, RMB internationalization distinguish this process from the emergence of the US dollar as the global reserve currency? The article proceeds by framing the RMB internationalization process as a historical palimpsest that emerges from three critical moments following the establishment of the People’s Republic of China in 1949. It then assesses their collective global historical significance through a comparison with the rationale and effects of dollar internationalization. Through foregrounding the domestic and global path-dependence of the RMB’s historical evolution, the article argues that RMB internationalization does not constitute a rupture in global historical terms by challenging the dollar’s global reserve currency status; rather, it paradoxically consolidates a dollar-centric global monetary system because the CPC is committed to sustaining the Mao-era (1949-76) legacy of absolute macroeconomic control.

The Risk of Capital Flight on Economic Growth and National Solvency: An Empirical Evidence from Palestine

Capital flight is a serious concern and threat to any country's economy, regardless of its level of development, because it represents a squandered investment that lays the way for future problems. The capital flight occurred in Palestine as a result of economic mismanagement, which was worsened by bad policy decisions that robbed the government of much-needed financial resources. This research investigates the consequences of capital flight on Palestinian economic growth. To obtain these results, they used yearly time series data from (1981 to 2021). The Autoregressive Distributed Lag ARDL model is used to investigate the research variables and data gathered from various sources. The findings reveal that factors such as real GDP in Palestine, capital flight, foreign reserves, foreign debt, and domestic investment are all connected in the long and short term. Moreover, the outcomes of various transactions show that capital flight has a negative and significant impact. In contrast, foreign currency reserves, public debt, and direct investment positively influence long-term economic growth. To curb the growing flood of capital flight, the government must implement realistic economic reform programs. These economic improvements must concentrate on these three areas to achieve strong macroeconomic stability, openness and accountability in public finance management and a supportive environment for local production.

Transforming Russia's participation in the global financial architecture in the face of geopolitical challenges

Subject. This article examines the evolution of the global financial architecture. Objectives. The article aims to analyze the opportunities of Russia in the context of globalization of the financial system. Methods. For the study, I used general scientific research methods. Results. The article substantiates the narrative of creating a parallel management circuit, namely, informal financial institutions (forums) operating in close coordination with international financial structures and providing soft regulation of financial relations on the basis of standards and codes. The article finds that Russia takes second place within the framework of the international financial architecture. Conclusions. Resuming the discussion on securing the status of international means of payment for certain currencies, including the ruble, is in Russia's interest. New instruments of international settlement should be independent of issuers of reserve currencies.

Sustainability of the Currency Board in Bosnia and Herzegovina in the Conditions of a Negative Interest Rate on the Reserve Currency

Abstract The Currency Board in Bosnia and Herzegovina (BiH) uses the euro as a reserve currency in the conditions of a negative nominal interest rate on deposits with the ECB. In this paper, we investigated the impact of negative interest rates on deposits and negative yields on bonds denominated in euro on the general advantages of the currency board and the consequences for the functioning of the currency board in BiH. The impact of negative interest rates was measured by the currency board coverage index (IC). A negative nominal interest rate on the reserve currency creates a negative seigniorage in the country of the currency board, increases the costs of issuing domestic money and reduces the competitiveness of the economy. The monetary policy of the ECB in the conditions of the COVID-19 crisis generates negative influences on the functioning of the currency board. The COVID-19 crisis poses a threat to currency board coverage in BiH. Technically, a currency board can also function in terms of negative interest on the invested reserve currency as long as it can cover the costs of its business.

Analysis of the Imperial Rent of Reserve Currency

This article provides an analysis of the economic cost incurred by the world through the use of the fiat international reserve currency since the end of the 1971 gold standard system. The article uses the Quantity Theory of Money to provide an empirical manifestation of how reserve currency yields income to its issuing country through the provision of an inflation buffer, which is equivalent to what the article frames as an imperial rent of reserve currency. The article then provides a method to estimate the cumulative quantity of this rent by using data on the broad money supply, nominal GDP, and world total official foreign exchange holdings of the currency of the country in question. The article estimates that the quantity of the imperial rent of reserve currency that accrued to the four major reserve currency-issuing states (US, Euro area, UK, Japan) from the end of the gold standard until the end of 2021, which was accumulated through the official channel only, is of a value equivalent to 11.1 trillion USD, 71 % of this amount went to the US singly.

Budućnost dolara kao svetske rezervne valute u novim međunarodnim okolnostima

The US dollar is the world's reserve currency, and it is also the currency most often used for trade and other international transactions. Due to the current geopolitical, economic and monetary developments, it is evident that a large number of countries are looking for ways to move away from the dominance of the dollar, as the leading world currency. The risk of de-dollarization has increased recently, partly due to the current Russian-Ukrainian crisis, as well as American economic sanctions against certain countries, and partly due to the growing role of the BRICS countries in the world economy. This paper argues and proves the hypothesis that the dollar as the world's reserve currency and the international monetary system are two sides of the same coin, that a complete loss of confidence in the dollar leads to the collapse of the global monetary system and vice versa, as well as that the destruction of the monetary system would lead to the disappearance of the dollar. The paper elaborates on dollar as a reserve world currency, theories of money, the dollar as a debt, deficits and monetary equivalents, the dollar and free markets, the IMF as a world bank and the SDR as a world money, the demand for gold as an indicator of distrust in the dollar, new global players and the world reserve currency, BRICS expansion and de-dollarization, and it is finalised with concluding remarks.

Статистичний аналіз та прогнозування складових національного валютного ринку в умовах вторгнення рф в Україну

The article focuses on determining the impact of the consequences of the russian invasion of Ukraine on macroeconomic stability and the exchange rate of the national currency. The relevance of the chosen topic is substantiated. The problems of assessing the negative consequences of the russian invasion of Ukraine are outlined, including: violation of general macroeconomic stability, significant fluctuations in foreign exchange markets and destabilization of the national currency. The study considers the theoretical and methodological foundations of the study of foreign exchange markets and analyzes global trends in the development of the global currency market. The structure of world currency reserves is analyzed according to the assessment of the currency composition of the official currency reserve (COFER) of the IMF. The analysis of the dynamics of average spreads of purchase and sale of reserve currencies against the US dollar for traditional and non-traditional reserve currencies is carried out. As a result of studying world trends, the main factors that affect fluctuations in the exchange rate of currencies are identified. The main problems regarding the functioning of the national currency market in the context of the hostilities in Ukraine are outlined, in particular, the existing inflationary processes are analyzed. The dynamics of currency interventions of the NBU for 2021-2022 is considered. The features (advantages) of the application and the results of using the singular spectral analysis (SSA) method for predicting fluctuations in the US dollar and Euro in the national foreign exchange market are presented. The practical implementation of this method was carried out using the CaterpillarSSA software product. Evaluation of the accuracy of the forecast is performed using the MAPE method. The obtained forecast errors (less than 6%) suggest that the constructed models are adequate and can be used for further research and recommendations. Thus, it can be concluded that for Ukraine the most important factors affecting the exchange rate are seasonality and successful trade policy of the government, which, in turn, largely depends on resource prices. The carried out research allowed to highlight the features and main aspects of the functioning of the foreign exchange market of Ukraine during the period of ongoing military aggression.

Globalna dominacija dolara na izmaku?

The paper points out that the relatively slow development of RMB as a reserve currency is taking place in parallel with the expansion of trade invoiced in the renminbi. It is argued that, even in the absence of financial liberalization, the renminbi could still become a global currency. Namely, the leading status in world trade creates the potential for creating demand and supply of renminbi. Additionally, in the same direction is working an increase in the number of central banks with which The People's Bank of China has agreements on swap lines for foreign exchange, as well as the accelerated development of the offshore Yuan market. An important moment will be the expected changes in the Chinese exchange rate regime, since the end of pegging RMB to a basket of currencies and the transition to an inflation-targeting regime could lead to a larger part of Asia following China that is using its currency more intensively. Additionally, although currently exclusively for domestic use, China's central bank's digital currency will eventually facilitate the international use of the renminbi. Consequently, it can be concluded that in the coming decades, the dollar will continue to play a predominant, but not, as it has been, an exclusive role in the international monetary order.

"ПЛАН МАРШАЛЛА" КАК ПРОГРАММА ВОССТАНОВЛЕНИЯ СТРАН ЗАПАДНОЙ ЕВРОПЫ ПОСЛЕ ВТОРОЙ МИРОВОЙ ВОЙНЫ И ПРИЧИНА УСТАНОВЛЕНИЯ МИРОВОГО ГОСПОДСТВА США

The article considers the reasons for the economic and political dependence of the countries of Western Europe on the United States of America. The foundations of that dependence were laid with the beginning of the implementation of the “Marshall Plan” in Europe. After World War II, the economies of European countries were in devastation, people were left without means of subsistence, without food, work and housing, and American industry had just regained its power, and it was not at all in its benefit to have the main consumers of its products plunged into a new crisis, into another Great Depression. Therefore, in the United States, the “Program for the Recovery of Europe” was developed, under which European countries received financial assistance to restore their economies, but in addition, the Americans put forward a number of conditions, the fulfillment of which led to just that very dependence on the donor country. Those conditions were: preventing representatives of communist parties from entering national governments, full control of Americans in the political sphere, over the use of funds, provision of complete information about the state of the economy, science, development of technology, priority of getting everything necessary for the development of the American economy from Europe, switching to the dollar, as a reserve currency and the transfer of all gold and foreign exchange reserves to USA. European countries had to guarantee American entrepreneurs the protection of their interests and investments. Thanks to such harsh conditions and total control, the United States managed not only to establish its influence on the countries of Western Europe and subjugate them to its power, but also to return all the funds spent on the implementation of the Marshall Plan, significantly increasing them.

Міжнародні резерви: досвід України та Польщі

The article highlights the theoretical and practical foundations of management of international reserves of both Ukraine and Poland. The article characterizes the system of elements of management of international reserves of the National Bank of Ukraine, which include: goals and principles of management; organizational structure of management; risks of operations with international reserves; risk assessment. The stages of management of international reserves of the National Bank of Poland are allocated and characterized, the relevant structures are defined. It is noted that in the process of managing foreign exchange reserves in Poland, decisions are made and implemented directly by the central bank of the country, without the participation of external asset managing institutions. The investment process is based on guidelines approved by the Board of the National Bank of Poland, including a set of norms, regulations and procedures, in particular on the decision-making process, permissible asset classes, as well as rules for financial risk management, including the establishment of credit limits and criteria for selecting a contractor. The structure of international reserves of both the National Bank of Ukraine and the National Bank of Poland is analyzed in terms of currencies. The value of gold and the share of gold in the international reserves of the National Bank of Ukraine and the National Bank of Poland are evaluated in dynamics. On the basis of the carried out study, conclusions were drawn and concrete proposals were formulated for improving the process of managing international reserves, taking into account international experience, namely: to optimize the structure of international reserves by diversifying it and expanding the list of reserve currencies; to increase the share of monetary gold as a reliable asset; to expand the direction of investing international reserves, in particular, to consider the possibility of investing in securities of countries that demonstrate sustainable development of their economies.

Механізми створення кризостійкої світової фінансової архітектури

Today, there is a clear need to create a new world financial architecture. In this regard, the key task of the leading countries is to reform the mechanisms for regulating world financial markets and supervising the operations of their participants in order to counter crisis shocks. Therefore, the aim of the article is to identify mechanisms for creating a crisis-resistant world financial architecture (WFA) and to analyze strategic approaches to increasing the stability of the global financial system in the face of modern economic and political challenges. In the course of writing the article, economic and statistical methods of analysis, description, measurement, comparison and observation were used. In the process of the study, general theoretical methods of scientific knowledge were also applied: synthesis, deduction, and induction. The study carried out a retrospective analysis of the world financial crises in order to allocate their main features; identify the most effective strategies for restoring positive trends and the effectiveness of anti-crisis policy under different conditions. An analysis of the current state of the WFA has been carried out and the main crisis processes of today have been defined. In order to develop a new strategy for ensuring a crisis-resistant system, a systematization and analysis of existing modern mechanisms for the prevention of financial crises has been carried out. As a result, the following are allocated: the monetary path; regulatory (infrastructural) approach; the use of a new world reserve currency instead of the US dollar; introduction of a regional currency with the possibility of using different underlying assets and transition to the currencies of individual countries. The results of the study were the identification of priority strategic steps and the development of recommendations for achieving the sustainability of the world financial architecture: compliance with the principles of counter-cyclical fiscal management; prudence in the implementation of monetary policy; the need to strengthen regulatory and supervisory control; timely detection of imbalances arising in financial markets; clear risk management and proper international cooperation. Prospects for further research in this direction can be: study of the impact of regional initiatives on the world financial architecture and the possibility of their use to reduce the vulnerability of the world economy to financial crises; development of innovative financial instruments and their importance for the WFA.

Трансформация валютно-финансовых инструментов рынка в условиях регионализации мировой экономики

The problems of transforming the elements of the global monetary and financial system in the direction of regionalization are discussed. The issues of prospects for de-dollarization and possible scenarios for switching to alternative means of payment in regional trade are discussed, five main scenarios for the development of the de-dollarization course are identified. The vulnerabilities of the Jamaican system in the context of global risks are identified. The analysis of the actual conditions for the formation of exchange rates is carried out. The main factors of the US dollar exchange rate formation are considered. A comparative analysis of the euro as a tool for replacing the world reserve currency is carried out, the weak position of the euro as a promising ‘donor’ of the US dollar has been revealed. The main threats to the economies of developing countries with weak national monetary institutions are formulated. An assessment of the structure of the distribution of investment gold among the national banks of the largest holders of reserves in precious metals is given, the dynamics of gold production and the dynamics of increment of reserves by national banks of the largest countries are considered, the prospects of gold mining and its distribution in the system of international finance are assessed. The applicability of futures of the main commodity markets as investment reserves is considered, the volatility of oil futures in terms of gold has been assessed. The prospects of the cryptocurrency market instruments as instruments for replacing the world reserve currency are assessed, the strengths and weaknesses of the processes of formation of crypto-tools markets are revealed