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on International Finance |
| By: | Ingomar Krohn; Philippe Mueller; Paul Whelan |
| Abstract: | We document that intraday currency returns display systematic reversals around the major benchmark fixings, characterized by an appreciation of the U.S. dollar pre-fix and a depreciation post-fix. We propose an explanation based on constrained intermediation by foreign exchange dealers. Exploiting data from a major inter-dealer platform, we present evidence of an unconditional demand for U.S. dollars at currency fixings. Dealers hedge this demand pre-fix, driving intraday reversals in both over-the-counter and exchange-traded markets. Furthermore, order imbalances in futures markets are not related to intraday reversal patterns, suggesting that the marginal investors in foreign exchange markets are intermediaries. |
| Keywords: | Financial markets; Exchange Rates; Market structure and pricing |
| JEL: | F31 G15 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:21-48&r= |
| By: | Ethan Ilzetzki; Carmen M. Reinhart; Kenneth S. Rogoff |
| Abstract: | This paper employs an updated algorithm and database for classifying exchange rate and anchor currency choice, to explore the evolution of the global exchange rate system, including parallel rates, capital controls and reserves. In line with a large recent literature, we find that the dollar has become ever-more central as the de facto anchor or reference currencies for much of the world. Our discussion encompasses the history of anchor currency choice, methods for classifying exchange rate regimes, a detailed discussion of the evolution of regimes, the growing substitution of reserves for capital controls as a tool for exchange rate stabilization, the modern Triffin dilemma, and the surprising recent trend decline in volatility of exchange rates at the core of the system. It concludes with issues surrounding the rise of China. |
| JEL: | E5 F3 F4 N2 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29347&r= |