IFin Seminar, Egemen Eren, BIS "Dominant Currency Debt"

Institute of Finance

Date: 30 October 2020 / 12:25 - 13:40

Speaker: Egemen Eren, BIS

Titlle:     "Dominant Currency Debt"

Date:     October 30, 2020

Time:     12:25 - 13:40

Room:    Virtual (zoom)




We propose a “debt view” to explain the dominant international role of the dollar and provide broad empirical support for it. Within a simple capital structure model in which firms optimally choose the currency composition of their debt, we derive conditions under which all firms issue debt in a single, “dominant” currency. Theoretically, it is the currency that depreciates in global downturns over horizons of typical debt maturity of firms. Both forward-looking and historical covariances suggest that the dollar fits this description better than all major currencies, especially for longer horizons. The debt view can jointly explain the fall and the rise of the dollar in international debt markets over the last two decades.