Crisi Finanziaria, Crisi Del Debito Sovrano e Guerra Valutaria

Crisi finanziaria, crisi del debito sovrano
e guerra valutaria
Michele Fratianni — Andrea F. Presbitero
Università Politecnica delle Marche

and
Money and Finance Research group (MoFiR)
MOFA — Master online di Finanza Ancona

ISTAO, 4 Dicembre 2010
Fratianni - Presbitero (Univpm – MoFiR) Crisi e monete ISTAO, 4 Dicembre 2010 1 / 46

Real policy rates and house prices in USA, 2001-May 2008
Bipartisan political responsibilities in increasing the housing demand (CRA, Fannie

Mae and Freddie Mac).
Real interest rates at historical minimum made financing very cheap, boosting
speculation.

across developed countries and emerging markets alike.
Capital flow bonanzas (Reinhart e Rogoff 2008)
Figure 4
Capital Mobility and the Incidence of Banking Crisis: All Countries,

High 1 1800-2008 35
Share of Countries
0.9 in Banking Crisis, 3-year
30
1914 Sum
0.8
(right scale)
0.7 25
0.6
20
Percent
Index
0.5
Capital Mobility
15
0.4 (left scale)
0.3 1825 1980

1860 10
0.2
1945 5
0.1 1918
Low 0 0
1800 1810 1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Sources: Bordo et al. (2001), Caprio et al. (2005), Kaminsky and Reinhart (1999), Obstfeld and Taylor (2004), an
these authors.
Notes: This sample includes all countries (even those not in our core sample of 66). The full listing of banking
Fratianni crises dates are
- Presbitero shown– in
(Univpm Appendix II. On theCrisi
MoFiR) left scale, we updated our favorite
e monete index4 of
ISTAO, capital 2010
Dicembre mobility, 3 / 46
The originate & distribute model (Rant 2008)
Broker places mortgage LEGEND KEY

End borrowers Broker loans to borrowers for fee O&G – interest and principal
$ SPV – special purpose vehicle
I&P ($)
Mortgages SPE – special purpose enterprise
Typically a specialized SIV – special investment vehicle
mortgage bank MBS – mortgage backed securities
Servicer Originator
$
Insurance Can assume part of
I&P ($) Mortgages company risks (insurance of
Conduit/trust/ mortgage loans,
$ insurance of MBS
Manages the flow of SPV/SPE/SIV
returns).
interests and principal
(I&P); usually, but not
necessarilly the Originator MBS
Investment bank Banks, insurance
(underwriter) $ companies, mutual
Founder: loan originator or funds, hedge funds…
investment bank
MBS, I&P ($)
Purpose: transfering
ownerhship of claims (loans) Rating agency Institutional
and collateral (mortgages) in investor $
Organizes issuing of
order to issue mortgage
MBSs and places
backed securities (bonds). Financial
MBSs to investors in
financial markets. returns ($)
Exposure of founder: implicit Assigns credit
guarantee in case of large rating to issued End lenders
losses. MBSs.

55 ss
in Selected Advanced Economies Japan
Japan
00
(Interest rates in percent unless otherwise noted)
U.S.
ii
U.S. announces
announces TALFTALF andand -5
purchase
purchase ofof GSE
GSE debt
debt and
and MBS -5
Monetary and fiscal policy during the crisis (WEO – Oct 2009)
Central banks have implemented unusually large interest rate cuts to combat the
BoE,
BoE, Fed,
Fed, and
and SNB
SNB start
start bond
bond purchases;
MBS
purchases; BoJ
BoJ expands
expands -10
-10 FF
purchases;
purchases; BoE
BoE sets
sets target
target rate
rate at
at 50
50 basis
basis points
points
recession. In addition, they have intervened in credit and asset markets to ease -15
-15
Continued, but Diminishing, Support from Policy 2007
2007 2008
2008 Aug.
Aug.
financial conditions. With inflation expected to remain constrained, very limited
09
09
policy tightening is expected over the coming year. mm
l Evolution
Evolution of
of Central
Central Bank
Bank Balance Sheets 22
Balance Sheets
ss
7 Nominal Short-Term Interest Real Short-Term Interest Rates 2 4 (index,
(index, June
June 2007
2007 == 100)
100) 400
400 tt
Rates1
6 Jun.
Jun. 2008
2008 350
350 ii
United 3 Oct.
Oct. 2008
2008
States tt
. 5 Euro area
Latest
Latest 300
300
2
Figure 1.7.
Euro General Government Fiscal Balances and 250
tt
4 250
area
Public Debt 1 ee
3 200
200
(Percent of GDP) Japan cc
0 150
2 150 oo
Fiscal
1 policy is providing significant stimulus to the globalUnited Public debt, -1
States
economy. 100
100 gg
Japan
however, is rising fast, particularly in advanced economies. Large corrections in
0 balances will be necessary to reverse this trend once the recovery is on a firm -2
fiscal 50
50 fifi
2000 02 04 06 08 Sep. 2000 02 04 06 08 Jul.
RUS
IND
AUS
KOR
GBR
ARG
IDN
JPN
CHE
USA
BRA
CHN
CAN
SAU
EUR
TUR
POL
HUN
NOR
SWE
RUS
IND
AUS
KOR
GBR
ARG
IDN
JPN
CHE
USA
BRA
CHN
CAN
SAU
EUR
TUR
POL
HUN
NOR
SWE
footing. 09 09 PP
d aa
1.5 Policy Rate Expectations 3 Central Banks’ Total Assets
Fiscal Balance 2 30 Support
Support for
for Financial
Financial and
and Other
Other Sectors
Sectors and
and Up-Front
Up-Front Financing
Financing Need
Need 35
35 mm
(percent; months on x-axis) (percent of 2008 GDP) (as
(as of
of June
June 2009,
2009, in
in percent
percent of
of 2008
2008 GDP)
GDP)
0 25 Capital
Capital injection
injection by
by governments
governments andand other
other institutions
institutions 30
30 rr
Japan
Europe World 20
Purchase
Purchase of of assets
assets and
and lending
lending by
by governments
governments
25
25
bb
1.0 -2 Guarantees
Guarantees
Liquidity
ff
Euro area Liquidity provision
provision and
and other
other support
support by
by central
central banks
banks 20
20
15 Up-front gg
United Kingdom -4 Up-front government
government financing
financing
15
15
0.5 Emerging and United Kingdom 10 ii
United -6
developing economies 10
States 10 tt
Advanced 5
-8 55 uu
United States economies
0.0 0 tt
t t+3 t+6 t+9 t + 12 2007 08 -10
Sep. 00
1970 80 90 2000 10 14 09 Advanced
Advanced economies
economies G20
G20 emerging
emerging economies
economies
ww
PublicCredit
3000 Debt Growth in Private 300 Quantitative Liquidity Measures 512012 Sources:
Sources: Horton,
Horton, Kumar,
Kumar, and
andMauro
Mauro(2009),
(2009), Table
Table4;4; and
and IMF
IMFstaff
staff calculations.
calculations.
Nonfinancial Sectors 4 (percent of G3 GDP) 11Financial ee
Financialstress
stressindicators
indicators consist
consistof
ofseven
seven financial
financial market
market variables,
variables,including
includingthe
the beta
beta
2500 250 10 of
of banking
banking stocks,
stocks,the
theTED
TED spread,
spread,the
theslope
slopeof of the
the yield
yieldcurve,
curve, corporate
corporate bondbondspreads,
spreads,
Base money 100
United States plus reserves stock
stock market
market returns,
returns, stock
stock market
market volatility,
volatility, and
andexchange
exchangerateratevolatility.
volatility. BoE:
BoE: Bank
Bank of
of
2000 200 Advanced 8
(left scale) economies England;
England; BoJ:
BoJ:Bank
BankofofJapan;
Japan; ECB:
ECB: European
European Central
Central Bank;
Bank; Fed:
Fed: Federal
FederalReserve;
Reserve; GSE:
GSE:
80
Fratianni government-sponsored
government-sponsored enterprises;
enterprises; MBS:
MBS: mortgage-backed
mortgage-backed securities; SNB:
SNB: Swiss
securities;2010 Swiss
1500 - Presbitero (Univpm
150– MoFiR) Crisi
6 e monete ISTAO, 4 Dicembre 5/ 46 p
From Financial Crash to Debt Crisis
There is a strong link between banking crises and sovereign default across the
economic history of great many countries, advanced and emerging alike.
1 Private debt surges are a recurring antecedent to banking crises;
governments quite contribute to this stage of the borrowing boom.
2 Banking crises (both domestic ones and those emanating from international
financial centers) often precede or accompany sovereign debt crises. Indeed,
there is evidence they help predict them.
3 Public borrowing accelerates markedly ahead of a sovereign debt crisis;
governments often have “hidden debts” that far exceed the better
documented levels of external debt. These (often undocumented) hidden
debts encompass domestic public debts.

FIGURE 2. Global Sovereign External Default Cycles: 1800-2009
Share of countries in default or restructuring
Sovereign External Default Cycles: 1800-2009 (Reinhart & Rogoff 2010)
60
Years during which at least 20%
of sample countries are in default
(shaded)
50
Share of countries in default
(or restructuring)
40
30
20
10
0
1800 1810 1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Sources: Lindert and Morton (1989), Macdonald (2003), Purcell and Kaufman (1993), Reinhart, Rogoff,
and Savastano (2003), Suter (1992), and Standard and Poor’s (various years).
Notes: Sample includes all countries, out of a total of 70 listed in Appendix Table 1, that were independent
Publicstates
debt follows
in the a lengthy
given year. and
Specifically, repeated
the number boom-bust
of countries cycle;
increases from 19 inthe
1800 bust
to 32 inphase
1826, asinvolves a
Latin higher
markedly American incidence
colonies gained ofindependence;
sovereignfollowing World War II, newly-independent Asian states
debt crises.
swell the number to 58 and in the following decades as African nation-sates are born the number of
Publicsovereign
sectorincreases
borrowing surges
to a total as full
of 70—the thesample.
crisis nears
Public debt follows a lengthy and repeated boom-bust cycle; the bust phase
.
Sovereign Default on External Debt, Total (domestic plus external) Public
FIGURE 14. Sovereign Default on External Debt, Total (domestic plus external) Public
Debt, Debt,
andandSystemic Banking
Systemic Banking Crises: Economies,
Crises: Advanced Advanced Economies, 1880-2010
1880-2010
(debt as a percent of GDP)
Years during which 25% or more
25 of advanced economies
entered the first year of a 90
banking crisis (black bars)
1893
1907
20 1914 80
1931
2008
70
15
60
10 50
40
5
Advanced economies
Percent of advanced Average public debt/GDP 30
economies in default (in percent, line, right scale)
or restructuring
(shaded, left scale)
0 20
1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Dependent variable Advanced Economies: Share of countries in default or restructuring

Banking crises most often either precede or coincide
Sample 1880-2009 with sovereign debt crises.
Independent variables OLS (robusterrors)
A causal chain from sovereign
Advanced Economies:
debt crisis to banking crisis,Logit (robusterrors)
perhaps obscured in these
simple
Public graphs,
debt/GDP (t-1) cannot be dismissed lightly.
0.209 0.002
p-value 0.000 0.000
FratianniNumber of observations
- Presbitero (Univpm – MoFiR) 130e monete
Crisi ISTAO,130 4 Dicembre 2010 8 / 46
The history on debtTabledefault (Reinhart
7. The Cumulative and Rogoff
Tally of Default and Rescheduling: 2008)
Europe, Latin America,
Oceania, Year of Independence–2006
North America, and
Country Year of Independence Share of years in default Total number of defaults

or rescheduling since and/or reschedulings
1
independence or 1800
Europe
Austria 1282 17.4 7
Belgium 1830 0.0 0
Denmark 980 0.0 0
Finland 1917 0.0 0
France 943 0.0 8
Germany 1618 13.0 8
Greece 1829 50.6 5
Hungary 1918 37.1 7
Italy 1569 3.4 1
Netherlands 1581 6.3 1
Norway 1905 0.0 0
Poland 1918 32.6 3
Portugal 1139 10.6 6
Romania 1878 23.3 3
Russia 1457 39.1 5
Spain 1476 23.7 13
Sweden 1523 0.0 0
Turkey 1453 15.5 6
United Kingdom 1066 0.0 0
Latin America
Argentina 1816 32.5 7
Bolivia 1825 22.0 5
Brazil 1822 25.4 9
Chile 1818 27.5 9
Colombia 1819 36.2 7
Costa Rica 1821 38.2 9
Dominican Republic 1845 29.0 7
Ecuador 1830 58.2 9
El Salvador 1821 26.3 5
Guatemala 1821 34.4 7
Honduras 1821 64.0 3
Mexico 1821 44.6 8
Nicaragua 1821 45.2 6
Panama 1903 27.9 3
Paraguay 1811 23.0 6
Peru 1821 40.3 8
Uruguay 1811 12.8 8
Venezuela 1830 38.4 10
North America
Canada 1867 0.0 0
United States 1783 0.0 0
Oceania
Australia 1901 0.0 0
New Zealand 1903 0.0 0
1
For countries that became independent prior to 1800 the calculations are for 1800–2006.
Fratianni - Presbitero (Univpm –Sources:
MoFiR) Authors’ calculations, Standard and Poor’s,
Crisi
Savastano (2003) and sources cited therein.
e Purcell
moneteand Kaufman (1993), Reinhart, Rogoff ISTAO,
and 4 Dicembre 2010 9 / 46
Debt and growth
Reinhart and Rogoff (2009, 2010) analysise newly compiled data on forty-four
countries spanning about two hundred years and find that:
1 the relationship between government debt and real GDP growth is weak for
debt/GDP ratios below 90% of GDP. Above the threshold of 90%, median
growth rates fall by 1%, and average growth falls considerably more.
2 emerging markets face lower thresholds for total external debt (public and
private) which is usually denominated in a foreign currency. When total

external debt reaches 60% of GDP, annual growth declines about 2%; for
higher levels, growth rates are roughly cut in half.
3 there is no apparent contemporaneous link between inflation and public debt
levels for the advanced countries as a group (some countries, such as the US,
have experienced higher inflation when debt/GDP is high). The story is
entirely different for emerging markets, where inflation rises sharply as debt
increases.

Public debt, growth and inflation (Reinhart and Rogoff 2010)

Debt and growth: the issue of causality
Growth—to–debt
There is little room to doubt that severe economic downturns, irrespective whether
their origins was a financial crisis or not, will, in most instances, lead to higher
debt/GDP levels contemporaneously and or with a lag.
“Banking crises weaken fiscal positions, with government revenues invariably
contracting. Three years after a crisis central government debt increases by about
86%. The fiscal burden of banking crisis extends beyond the cost of the bailouts”
(Reinhart and Rogoff 2008).
Debt–to–growth
Public debt surges are associated with a higher incidence of debt crises and lower
GDP growth.
At a very basic level, a high public debt burden implies higher future taxes
(inflation is also a tax) or lower future government spending, if the government is
expected to repay its debts (debt overhang and crowding out effects).
The recent turmoil in Ireland, Greece and other European countries can be
importantly traced to the adverse impacts of high levels of government debt (or
potentially guaranteed debt) on county risk and economic outcomes.

Banking crisis and public debt (Reinhart and Rogoff 2010)

The crisis and the rise in public debt
The global financial crisis triggered a sharp increase in public debt levels, both in
absolute terms and relative to GDP.
The level of aggregate net government debt in the world rose from $23 trillion in
2007 to an expected $34 trillion in 2010.
IMF forecasts indicate the level will reach $48 trillion in 2015. The ratio of world
debt to world GDP rose from 44% in 2007 to 59% in 2010, and is expected to
climb to 65% in 2015.
The consequences of rising public debts

1 Fiscal and macroeconomic instability ⇒ lower investment and GDP growth.
2 Transfer of wealth across generations.

Net debt to GDP in 2010 (Prasad 2010)
Net Debt to GDP: 2010
(In percent)
160.0
140.0
120.0
100.0
80.0
60.0
40.0
20.0
0.0
Belgium
France
Indonesia
Japan
Australia
Iceland
Austria
Spain
Sweden
India
Malaysia
Pakistan
Estonia
Bulgaria
Thailand
Lithuania
South Africa
Colombia
Poland
Kenya
Russia
Chile
Italy
Israel
UK
US
Finland
Ireland
Slovenia
Hungary
Brazil
Turkey
Philippines
Nigeria
Greece
Singapore
Switzerland
Czech Rep
Korea
Slovak Rep
Canada
New Zealand
Hong Kong
Argentina
Mexico
Latvia
Ukraine
Romania
Peru
China
Saudi Arabia
Portugal
Germany
Netherlands
Denmark
-20.0
-40.0
-60.0
Source: IMF Fiscal Monitor, May 2010
Notes: The darker bars indicate G-20 countries, along with Spain and the Netherlands. The solid lines show medians for the advanced economies (blue) and emerging
markets (maroon). Gross debt data are used for the following countries that do not report net debt data: Advanced Economies -- Czech Rep, Finland, Greece, Korea,
Singapore, Slovak Rep and Slovenia; Emerging Market Economies -- Argentina, China, India, Indonesia, Malaysia, Pakistan, Peru, Philippines, Romania, Russia and Thailand
Norway, which has a large negative net debt position, is excluded from this figure.

Is the worst yet to come?
Advanced economies (AEs) account for much of the increase in world public debt,
putting their own as well as global financial stability in jeopardy.
AEs account for the bulk of the increase in global public debt since the start of the
crisis. By contrast, debt ratios will shrink for emerging markets (EMs).
EMs contribute far more to growth in global GDP than to the growth in global
public debt, reflecting an improvement in their fiscal positions while AEs
experience a fiscal deterioration in both absolute and relative terms.
The average per capita debt in AEs was $19,400 in 2007, rises to $29,100 in 2010
and will go up to $41,000 in 2015 (in EMs per capita debt will reach $1,500 in
2015). The burden of debt for U.S. citizens will rise from $19,700 in 2007 to
$31,600 in 2010 and then to $48,000 by 2015. The debt burden for Japanese
citizens will hit $75,900 in 2015, the highest level in the world.
AEs as a group:
1 are experiencing little population growth.
2 they are facing rapidly aging populations.
3 their economies are likely to register slow growth (relative to the EMs).
4 entitlement spending on health care and pensions is likely to explode due to
unfavorable demographics.

Total US (public and private) debt outstanding (Reinhart and Rogoff 2010)

National monies
National currencies tend to dominate foreign currencies as means of exchange

partly because the bulk of transactions is local and partly because governments
discriminate in favor of the currency they issue.
Legal tender laws and the fact that governments generally disburse funds and
receive tax collections in the government-issued currency raise the cost of using
other currencies as alternative means of payment in the domestic market.
Currency substitution – the replacement of domestic money with a superior
foreign money – tends to be a slow process.

National monies: examples
An historical example of slow currency substitution occurred during the German

hyperinflation of the 1920s. It has been estimated that a monthly inflation rate of
10% led to a currency substitution of only 5 per cent of the money stock.
In modern times, we have cases of partial and complete currency substitution:
I Vietnam is the best example of partial currency substitution. The US dollar
is a parallel currency to the Vietnamese dong. The Vietnamese authorities,
naturally, “tolerate” the parallel currency even though the dong is the only
legal-tender currency. There is a black and active local exchange market
dong-dollar and the rates often diverge from the official dong-exchange rate.
I Ecuador is the best example of complete currency substitution. The local
currency, sucre, was completely replaced by the US dollar after a Presidential
election in Ecuador was won on this very issue.
F The reason for the complete substitution was that the sucre was deemed a
high-inflation currency and that it would have been too costly and long to
hope for a disinflation of the local currency. The better alternative was the
adoption of a low-inflation foreign currency, which translates into the fact
that Ecuador willingly gave up its monetary policy and seigniorage.

A reserve currency (Galati and Wooldridge 2008)
An international currency is one that is used by non-residents as a medium of

exchange, store of value and unit of account.
While in principle these roles can be fulfilled by different currencies, historically the
international currency that has dominated as a medium of exchange has also
served as the main store of value
Table: Roles of an international currency
Role Private use Official use

Medium of Vehicle currency (in foreign exchange Foreign exchange
exchange markets) intervention
Store of value Banking Reserve accumulation
Unit of account Invoicing (for trade or financial Monetary anchor
transactions)

International monies
At the international level legal restrictions matter much less than at the national
level; consequently, there is competition among national monies.
At least, two factors play in this competition:
1 the relative purchasing power of the national monies: people prefer
low-inflation monies to high-inflation monies;

2 the transaction cost in the exchange from money to gods and goods to
money. These costs decline as the transaction domain of a currency expands.

More simply, the value of using a given currency depends on how many
individuals use it (same principle of a language).
F First implication: an international currency gains from inertia. New
upcoming currencies, with similarly low transaction costs, may not be

able to quickly upstage the dominant currency.
F Second implication: an international currency, once established, withers
away slowly.

Long-dated historical examples of international monies
The Roman silver denarius was the first world currency.

The Byzantine solidus was the unchallenged coin from the 5th to the 7th century;
some economic historians have called it the dollar of the Middle Ages.
The international role of the solidus was successfully challenged by the Islamic
dinar which became the dominant money until the 12th century.
In the 13th century, the Italian coins came to prominence: the Genoese genoino,
the Florentine fiorino, and the Venetian ducato. All three coins circulated side by
side (parallel monies) for quite some time.

Modern examples of international monies
In the 19th century, Britain was the leading industrial economy in the world and
the British pound became the leading international currency. Britain’s
economic preeminence came to an end after World War I, but the key status of the
pound lasted for more than four more decades. As late as 1965, 20 per cent of
official reserves were denominated in pound.
I Once a network has been acquired, the decline occurs slowly.
The U.S. dollar emerged as the dominant international currency after World
War II, but lost some ground towards the end of the 20th century, first with
respect to the Deutsche mark and the Japanese yen and later to the euro.
I Its decline appears also to be slow.

Different Roles of an International Money
Used as a reference currency in defining fixed exchange rates
Used to invoice internationally traded goods and services
Used as a vehicle currency (that is as neither the exporter’s nor importer’s

currency) in the foreign exchange markets
Used to denominate financial assets held by monetary authorities and the private
sector.

Reference currency in defining fixed exchange rates
During the international gold standard (1880-1914), exchange rates were

predominantly defined in terms of the British pound.
I London was the most important financial center and the Bank of England acted as
a director of the gold standard orchestra.
I Countries kept international reserves in the form of gold and sterling deposits
with the Bank of England.
I For example, when Mussolini in 1926 decided to implement an appreciation of the
Italian lira in the exchange markets, he made a speech in Pesaro stating that his
objective was for the lira to reach Quota Novanta, that is an exchange rate of 90
lire for each sterling (at the time, the lira-sterling exchange rate was much higher).
After WWII, the international gold standard evolved into a gold-dollar exchange
standard.
I The dollar was linked to gold at a fixed price of $35 an ounce and all other
currencies were linked to the dollar by a fixed exchange rate.
The gold-dollar exchange standard is now finished; yet, we tend to quote exchange
rates predominantly in terms of US dollars.

Vehicle currency
Most international commodities are priced in dollars: petroleum, gold, silver,

antimonium, etc. Transparency and ease of comparing prices at different locations
are two advantages in using a common currency to price commodities.
The traditional model of the trade balance postulates that exports are invoiced in
national currency and imports are invoiced in foreign currency. Under these
conditions, a depreciation of the national currency is likely to improve the trade
balance because:
1 the foreign-currency price of exports declines and
2 the national-currency price of imports rises.
The facts are different (see next table). The US dollar appears to be the primary
vehicle currency. Take Japan as an example. 48% of exports and 69% of imports
are invoiced in dollars. For Germany and Italy, these percentages are much smaller
but still relevant. This means that if two countries have to choose a third currency
to trade, the dollar is the most likely vehicle currency.
The US, on the other hand, uses the dollar almost exclusively for export and import
invoicing. The implication is that a depreciation of the dollar in the exchange
markets makes US products more competitive in the world, while not affecting the
price of imports: the US has an advantage from the international role of the dollar.

USD use in the exportL.S. Goldberg,
and C.import invoicing (Gilbert and Tllle 2008)
Tille / Journal of International Economics 76 (2008) 177–192 183
Table 1
U.S. dollar use in the export and import invoicing of 24 countries
Invoicing US $ share in US $ share in Exporter currency share in Exporter currency share in

observation b export invoicing import invoicing export invoicing import invoicing
United States 2003 99.8 92.8 99.8 92.8
Asia
Japan 2001 52.4 70.7 36.1 23.5
Korea 2001 84.9 82.2 – –
Malaysia 1996 66.0 66.0 17.8 17.8
Thailand 1996 83.9 83.9 1.0 1.0
Australia 2002 67.9 50.1 27.6 30.6
European Union
Belgium a 2002 31.9 33.5 54.2 54.2
France a 2002 34.2 43.2 55.8 48.6
Germany a 2002 32.3 37.9 45.9 45.5
Greece a 2002 71.0 62.0 24.1 30.7
Italy 2002 20.5 30.8 70.6 64.1
Luxembourg a 2002 35.7 38.0 49.1 37.4
Portugal a 2002 33.4 34.5 48.1 57.8
Spain a 2002 32.8 39.5 58.1 54.7
United Kingdom 2002 26.0 37.0 51.0 33.0
EU accession
Bulgaria 2002 44.5 37.1 – –
Cyprus 2002 44.7 34.9 – –
Czech 2002 14.7 19.5 10.2 8.7
Estonia 2003 8.5 22.0 – –
Hungary 2002 12.2 18.5 – –
Latvia 2002 36.2 29.8 6.6 6.6
Poland 2002 29.9 28.6 – –
Slovakia 2002 11.6 21.2 – –
Slovenia 2002 9.6 13.3 – –
a
Invoicing data refer only to the invoicing of “extra euro-area” trade.
b
Latest Observations are annual except for: Japan — January 2001, Germany and Germanya — 2002Q3, Estonia — Jan–Aug 2003. United States data are for
2003Q1. Malaysia and Thailand are for overall trade and are not broken down by imports.

Currency distribution of global foreign exchange market turnover
REVISED
Percentage shares of average daily turnover

Table 3in April (BIS 2010)
Currency distribution of global foreign exchange market turnover1
Percentage shares of average daily turnover in April
Currency 1998 2001 2004 2007 2010
US dollar 86.8 89.9 88.0 85.6 84.9 The asymmetric use of
Euro ... 37.9 37.4 37.0 39.1
Deutsche mark 30.5 ... ... ... ... currencies can be gleaned
French franc 5.0 ... ... ... ...
ECU and other EMS currencies 16.8 ... ... ... ... also from the this table
Slovak koruna 2 ... 0.0 0.0 0.1 ...
Japanese yen 21.7 23.5 20.8 17.2 19.0
Pound sterling 11.0 13.0 16.5 14.9 12.9
The four most traded
Australian dollar
Swiss franc
3.0
7.1
4.3
6.0
6.0
6.0
6.6
6.8
7.6
6.4
currencies are, in
Canadian dollar
Hong Kong dollar 3, 4
3.5
1.0
4.5
2.2
4.2
1.8
4.3
2.7
5.3
2.4
descending order, the
Swedish krona5
New Zealand dollar 3, 4
0.3
0.2
2.5
0.6
2.2
1.1
2.7
1.9
2.2
1.6
dollar, the euro, the
Korean won3,4 0.2 0.8 1.1 1.2 1.5 Japanese yen, and the
Singapore dollar 3 1.1 1.1 0.9 1.2 1.4
Norwegian krone3 0.2 1.5 1.4 2.1 1.3 British pound.
Mexican peso3 0.5 0.8 1.1 1.3 1.3
Indian rupee 3,4
Russian Rouble 3
0.1
0.3
0.2
0.3
0.3
0.6
0.7
0.7
0.9
0.9
In terms of currency pairs,
Polish zloty3
Turkish new lira2
0.1
...
0.5
0.0
0.4
0.1
0.8
0.2
0.8
0.7
the largest and thickest
South African rand 3, 4 0.4 0.9 0.7 0.9 0.7 FOREX markets is the
Brazilian real 3, 4 0.2 0.5 0.3 0.4 0.7
Danish krone 3 0.3 1.2 0.9 0.8 0.6 dollar/euro, followed by
New Taiwan dollar3 0.1 0.3 0.4 0.4 0.5
Hungarian forint 3 0.0 0.0 0.2 0.3 0.4 the dollar/yen, the
Chinese renminbi 4
Malaysian ringgit 2
0.0
0.0
0.0
0.1
0.1
0.1
0.5
0.1
0.3
0.3
dollar/pound and
Thai baht3
Czech koruna 3
0.1
0.3
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
dollar/Swiss franc.
Philipine peso 2 0.0 0.0 0.0 0.1 0.2
Chilean peso 2 0.1 0.2 0.1 0.1 0.2 In all four cases, the dollar
Indonesian rupiah 2 0.1 0.0 0.1 0.1 0.2
Israeli new shekel 2 ... 0.1 0.1 0.2 0.2 is the other currency in
Colombian peso 2
Saudi Riyal2
...
0.1
0.0
0.1
0.0
0.0
0.1
0.1
0.1
0.1
the exchange.
Other currencies 8.9 6.5 6.6 7.6 5.3
All currencies 200.0 200.0 200.0 200.0 200.0
Fratianni - Presbitero (Univpm – MoFiR)

1
Crisi e monete ISTAO, 4 Dicembre 2010 28 / 46
Denomination of financial assets held by the private sector (1)
Table 5A: Currency Breakdown
Reporting banks' cross-border positions vis-à-vis all sectors
in billions of US dollars
Amounts outstanding Estimated exchange rate adjusted changes
Currencies Dec 2007 Dec 2008 Dec 2009 Mar 2010 2008 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010
Assets
All Currencies 33,440.6 31,193.3 30,023.5 29,731.1 –1,435.1 –1,903.0 –422.4 –278.4 –397.2 647.5
A) Domestic currency 13,992.7 12,970.1 12,792.7 12,559.2 –459.7 –613.7 –115.0 –178.4 –169.6 346.3
U.S. dollar 2,791.0 2,537.9 2,833.5 3,025.4 –403.1 279.2 24.7 113.0 49.2 191.9
Euro 8,820.0 8,389.2 8,109.9 7,702.9 59.6 –537.6 –80.9 –97.4 –175.9 117.9
Yen 619.0 715.5 588.2 591.0 –55.5 –116.8 29.8 –60.1 –12.9 10.7
Pound sterling 1,212.5 846.0 777.7 757.5 –49.0 –170.0 –72.4 –121.0 –0.5 26.1
Swiss franc 136.5 115.3 99.4 95.6 –25.2 –18.9 –6.6 –1.9 –8.7 –1.0
Other 413.5 366.2 384.0 386.7 13.5 –49.6 –9.6 –11.0 –20.8 0.7
B) Foreign currency 17,924.5 16,667.9 15,752.9 15,676.0 –963.9 –1,199.8 –297.6 –73.3 –224.8 260.8
U.S. dollar 9,940.1 9,657.0 9,015.6 9,068.9 –299.5 –666.5 –303.4 37.8 –50.0 53.9
Euro 4,132.3 3,741.2 3,511.8 3,405.3 –242.2 –351.7 –28.6 –87.3 –99.7 106.5
Yen 671.1 654.1 451.2 446.0 –186.0 –196.4 56.6 –25.7 –90.7 0.7
Pound sterling 1,257.1 919.0 924.0 864.7 –0.5 –101.8 –63.4 –65.5 –26.5 0.3
Swiss franc 389.9 368.7 329.2 316.6 –42.1 –50.6 –7.4 –33.1 –14.1 –3.4
Other 1,534.0 1,327.8 1,521.1 1,574.5 –193.5 167.1 48.6 100.4 56.3 102.9
C) Unallocated 1,523.4 1,555.3 1,477.9 1,495.9 –11.4 –89.4 –9.8 –26.6 –2.8 40.5
Liabilities
All Currencies 31,418.1 29,067.4 28,093.5 27,836.3 –1,390.8 –1,714.4 –451.7 –215.8 –299.2 524.0
A) Domestic currency 12,649.2 11,757.9 11,496.9 11,340.5 –206.3 –705.1 –208.8 –27.6 –155.3 293.9
US dollar 3,454.0 3,298.3 3,178.5 3,258.4 –393.3 –119.8 –105.7 157.2 75.1 79.8
Euro 6,834.8 6,429.7 6,246.3 6,091.4 124.7 –398.8 –42.7 –110.4 –158.0 253.8
Yen 252.6 381.3 334.8 303.9 61.0 –41.5 18.9 –17.9 –10.7 –27.4
Pound sterling 1,484.0 1,032.1 1,044.1 1,004.8 –80.8 –118.9 –74.0 –62.1 –39.1 –2.3
Swiss franc 91.8 91.4 92.6 90.1 –4.6 –2.3 4.8 –17.6 4.4 0.1
Other 532.0 525.2 600.5 591.9 86.7 –23.8 –10.1 23.2 –26.9 –10.1
B) Foreign currency 17,527.5 16,042.7 15,398.4 15,261.3 –1,226.5 –928.7 –227.1 –175.1 –154.5 171.7
U.S. dollar 10,021.5 9,261.0 9,070.6 9,021.0 –756.6 –211.9 –111.1 31.6 –11.0 –49.6
Euro 3,475.0 3,262.2 3,158.1 3,074.7 –78.2 –229.1 –80.1 –84.3 –22.6 107.3
Yen 824.2 825.8 578.5 585.9 –203.2 –239.3 39.8 –44.7 –102.5 15.2
Pound sterling 1,326.1 1,006.5 857.0 801.0 33.6 –251.2 –61.2 –90.2 –24.7 –0.7
Swiss franc 395.2 405.6 371.0 359.6 –20.8 –49.6 –21.9 –29.8 –11.6 –1.0
Other 1,485.4 1,281.6 1,363.2 1,419.1 –201.2 52.4 7.4 42.3 17.9 100.5
C) Unallocated 1,241.4 1,266.8 1,198.3 1,234.6 41.9 –80.6 –15.8 –13.0 10.5 58.4

Table 13A: International money market instruments
By type, sector and currency
In billions of US dollars
Amounts outstanding Gross issuance Net issues
Type, sector and currency Dec 2009 Mar 2010 Jun 2010 Q1 2010 Q2 2010 2008 2009 Q4 2009 Q1 2010 Q2 2010
Total issues 932.2 945.0 877.1 705.4 634.0 81.0 –237.5 –140.6 49.1 –27.0
Commercial paper 598.9 594.7 521.4 491.3 412.0 70.0 –137.6 –99.3 21.4 –45.2
US dollar 174.7 182.6 159.1 144.7 125.6 –20.4 –37.8 –6.3 7.8 –23.5
Euro 306.5 294.7 259.3 247.9 204.6 71.9 –48.1 –67.9 8.1 –9.2
Yen 3.9 5.2 4.7 4.5 2.2 –13.4 –2.0 –1.8 1.4 –0.8
Pound sterling 80.9 78.9 67.9 69.3 57.2 31.6 –36.8 –17.2 3.3 –10.2
Swiss franc 14.7 13.2 12.9 10.2 8.6 –1.9 –4.2 –1.2 –1.1 –0.1
Canadian dollar 0.7 1.3 1.0 1.1 0.5 –0.6 0.0 0.0 0.5 –0.2
Other currencies 17.4 18.9 16.4 13.7 13.2 2.7 –8.7 –4.8 1.4 –1.3
Financial institutions 526.4 521.3 450.7 426.9 358.2 –32.0 –48.6 –63.1 18.2 –45.6
Governments 32.1 35.7 28.4 31.4 17.3 72.6 –48.3 –24.4 4.3 –6.5
International organisations 6.9 6.3 9.5 5.4 8.6 2.9 –11.9 3.0 –0.6 3.3
Corporate issuers 33.5 31.4 32.8 27.6 27.9 26.5 –28.9 –14.8 –0.5 3.5
Other instruments 333.3 350.3 355.7 214.1 222.0 11.0 –99.9 –41.3 27.7 18.2
US dollar 145.4 156.5 159.8 86.0 98.3 7.4 –12.2 8.0 11.1 3.3
Euro 136.5 138.1 135.9 94.7 91.9 3.1 –39.4 –32.3 10.7 10.5
Yen 13.0 14.0 15.0 5.9 5.2 3.1 –12.9 1.7 1.2 0.2
Pound sterling 18.2 20.9 24.4 16.3 16.5 9.2 –27.7 –15.0 4.0 3.7
Swiss franc 6.1 5.1 5.5 2.4 2.9 –2.2 0.3 –0.8 –0.8 0.5
Canadian dollar 0.3 0.4 0.2 0.2 0.1 –1.5 –1.0 –0.7 0.0 –0.2
Other currencies 13.8 15.4 15.0 8.6 7.1 –8.0 –7.0 –2.4 1.5 0.1
Financial institutions 330.4 348.7 351.8 213.9 219.1 9.6 –96.3 –40.7 28.9 15.8
Governments 0.8 0.5 2.9 0.1 2.4 1.4 –1.8 0.1 –0.3 2.4
International organisations 1.1 0.4 0.3 0.0 0.1 –1.0 0.5 –0.1 –0.7 –0.1
Corporate issuers 0.9 0.7 0.7 0.2 0.4 1.0 –2.3 –0.6 –0.2 0.1
Currency of issue
Argentine peso – – – – – – – – – –
Australian dollar 10.0 10.7 11.0 8.0 9.2 1.9 –2.5 –2.3 0.4 1.1
Baht – 0.0 – 0.0 – –0.0 –0.0 –0.0 0.0 –
Canadian dollar 1.0 1.6 1.1 1.3 0.6 –2.1 –0.9 –0.7 0.6 –0.4
Czech koruna 0.0 0.0 0.0 – 0.0 0.2 –0.2 – – 0.0
Danish krone 0.2 0.2 0.2 0.2 0.2 1.6 –1.3 –0.2 0.0 –0.0
Euro 443.0 432.8 395.3 342.6 296.6 75.0 –87.5 –100.2 18.8 1.3
Hong Kong dollar 9.2 9.0 6.7 5.1 3.8 –5.9 –3.6 –2.5 –0.2 –2.2
New Taiwan dollar – – – – – –0.2 – – – –
New Zealand dollar 2.4 2.9 2.8 2.5 2.4 –1.4 –0.7 –0.6 0.5 –0.0
Norwegian krone 0.8 1.2 0.7 1.2 0.6 2.5 –2.2 –0.4 0.4 –0.5
Pound sterling 99.0 99.7 92.3 85.5 73.7 40.8 –64.4 –32.2 7.3 –6.5
Rand 0.2 0.2 0.2 0.0 0.0 0.2 –0.2 –0.2 –0.0 0.0
Russian rouble 1.1 1.0 1.0 0.0 – 0.1 –0.0 –0.0 –0.1 –0.0
Singapore dollar 1.8 1.5 1.6 1.0 1.1 –2.1 0.5 0.0 –0.3 0.1
Swedish krona 1.7 2.9 2.8 1.6 1.1 1.5 –1.9 –1.2 1.2 0.1
Swiss franc 20.8 18.3 18.4 12.6 11.6 –4.1 –3.9 –2.0 –2.0 0.4
US dollar 320.1 339.0 318.9 230.7 223.9 –13.0 –50.0 1.7 18.9 –20.2
Yen 16.9 19.3 19.7 10.4 7.3 –10.3 –14.9 –0.1 2.7 –0.5
Zloty 1.9 2.3 2.0 1.5 1.3 0.2 –0.2 –0.0 0.4 0.1
Memorandum item:
Domestic money
market instruments
Total issues 12,733.4 12,673.3 … … … 1,441.9 –584.9 –485.7 144.5 …
Commercial paper 1,833.0 1,725.9 … … … –274.3 –631.3 –31.0 –87.2 …
Treasury bills 5,591.3 5,609.5 … … … 1,314.2 414.7 –276.5 109.0 …
Other instruments 5,309.1 5,337.9 … … … 402.0 –368.2 –178.2 122.7 …

Table 13B: International bonds and notes
By type, sector and currency
Amounts outstanding Announced issues Net issues
Type, sector and currency Dec 2009 Mar 2010 Jun 2010 Q1 2010 Q2 2010 2008 2009 Q4 2009 Q1 2010 Q2 2010
Total issues 26,071.3 25,669.5 24,692.9 1,522.0 1,020.5 2,343.3 2,576.4 449.9 549.7 126.4
Floating rate 8,353.2 7,982.5 7,480.1 367.1 254.9 1,202.4 173.7 –68.6 –4.6 –98.8
US dollar 2,256.9 2,250.3 2,231.4 135.3 76.9 176.8 30.0 –37.7 –6.6 –18.9
Euro 4,667.7 4,374.7 3,935.0 179.2 139.6 520.7 44.8 –14.0 7.5 –48.9
Yen 180.7 173.7 175.7 4.4 4.0 17.9 5.0 –1.5 –4.9 –6.6
Pound sterling 993.0 930.1 897.0 31.8 19.1 474.0 83.2 –13.6 1.3 –24.3
Swiss franc 23.3 19.6 18.8 2.1 1.7 –3.1 –6.2 –2.3 –3.1 –0.4
Canadian dollar 30.0 29.3 30.0 2.2 2.4 –4.6 –0.7 –1.1 –1.7 1.7
Other currencies 201.5 204.9 192.2 12.0 11.2 20.7 17.6 1.6 3.0 –1.3
Financial institutions 7,993.5 7,625.9 7,147.2 335.9 230.3 1,213.0 166.8 –57.2 –17.2 –95.0
Governments 113.9 116.9 115.0 11.7 16.0 –10.2 11.4 –0.4 9.4 7.5
International organisations 48.7 55.7 55.8 13.2 5.4 –0.2 24.0 –4.0 8.5 1.9
Corporate issuers 197.2 184.0 162.1 6.2 3.2 –0.3 –28.5 –7.0 –5.3 –13.2
Straight fixed rate 17,274.2 17,243.6 16,769.5 1,130.4 746.1 1,136.3 2,362.5 495.6 546.2 215.7
US dollar 6,974.6 7,260.7 7,418.4 524.5 407.2 505.3 1,146.0 288.4 286.0 157.8
Euro 7,591.5 7,323.9 6,691.8 476.0 226.3 446.0 1,021.5 178.0 229.0 27.7
Yen 461.7 448.7 466.2 11.8 18.6 1.7 –35.9 –10.9 –7.4 –5.5
Pound sterling 1,144.0 1,089.2 1,097.3 43.1 36.3 85.8 157.6 14.8 19.8 17.6
Swiss franc 332.8 327.7 321.1 19.6 10.4 19.0 26.6 3.6 4.2 0.4
Canadian dollar 269.6 279.3 281.8 10.6 12.4 34.0 22.2 11.5 1.6 12.0
Other currencies 500.0 514.1 492.8 44.8 34.8 44.6 24.5 10.2 12.9 5.8
Financial institutions 11,807.7 11,678.8 11,274.9 710.7 502.5 767.0 1,316.1 284.5 262.0 54.7
Governments 2,116.9 2,138.7 2,048.1 173.8 71.0 36.7 361.7 80.3 120.9 38.4
International organisations 743.9 759.5 757.9 62.7 50.8 55.2 89.5 0.9 35.3 25.6
Corporate issuers 2,605.6 2,666.6 2,688.6 183.2 121.8 277.4 595.3 129.9 128.0 97.0
Equity-related 443.9 443.4 443.3 24.5 19.5 4.7 40.2 22.9 8.0 9.6
US dollar 196.7 209.9 221.3 16.1 15.7 2.5 38.7 14.3 13.2 11.4
Euro 123.3 110.8 100.2 3.2 1.3 –15.3 7.0 2.9 –4.6 –0.6
Yen 51.2 47.5 48.7 0.7 0.5 1.0 –10.4 –0.2 –3.1 –1.2
Pound sterling 7.7 8.3 8.8 1.3 0.6 2.0 –0.6 –0.2 1.1 0.6
Swiss franc 9.4 8.4 7.2 0.3 0.2 –2.5 0.6 1.1 –0.7 –1.0
Canadian dollar 7.4 8.7 9.2 1.1 1.1 1.6 2.9 1.4 1.1 0.9
Other currencies 48.3 49.8 47.9 1.8 0.2 15.4 2.0 3.6 1.0 –0.3
Financial institutions 211.5 211.5 205.3 10.5 7.4 7.3 0.5 8.0 4.9 0.9
Governments 1.4 1.1 1.0 – – –0.1 –0.3 – –0.2 –
International organisations – – – – – – – – – –
Corporate issuers 231.0 230.8 237.0 14.0 12.2 –2.5 40.1 14.9 3.3 8.7
Convertibles 439.7 439.9 440.3 24.5 19.5 6.0 41.2 22.9 8.6 9.9
Warrants 4.2 3.5 3.1 – – –1.4 –1.1 – –0.6 –0.3
Currency of issue
Argentine peso 0.7 0.7 0.6 – – –0.2 0.1 – – –0.1
Australian dollar 266.5 283.7 265.9 25.4 13.5 11.7 15.0 14.5 11.4 2.2
Baht 3.6 3.8 3.8 – 0.1 0.4 0.4 – – –
Canadian dollar 307.0 317.3 321.0 14.0 15.9 30.9 24.4 11.8 1.0 14.5
Czech koruna 18.4 16.9 14.3 0.2 0.3 –0.1 –1.8 –0.5 –1.0 –0.9
Danish krone 5.2 4.7 4.0 – – 0.1 –2.6 –0.3 –0.2 –0.3
Euro 12,382.5 11,809.4 10,727.0 658.4 367.3 951.4 1,073.3 166.8 231.8 –21.8
Hong Kong dollar 60.6 61.4 60.0 3.7 2.5 –6.9 0.4 –1.8 0.9 –1.2
New Taiwan dollar 1.6 1.5 1.5 – – –0.5 –0.1 – –0.1 –
New Zealand dollar 41.9 38.6 36.1 2.7 1.5 1.5 –5.8 –0.0 –2.6 –1.5
Norwegian krone 53.7 55.4 53.9 5.8 5.3 7.1 17.9 2.6 3.6 3.0
Pound sterling 2,144.6 2,027.6 2,003.1 76.3 56.0 561.7 240.1 1.1 22.2 –6.2
Rand 37.7 37.1 34.7 2.6 2.1 8.9 –1.8 –0.8 –0.8 –1.0
Russian rouble 13.3 13.9 12.5 1.6 0.4 4.9 1.4 0.4 0.2 –0.6
Singapore dollar 29.3 30.3 29.2 1.8 0.6 6.3 –2.5 –0.4 1.0 –1.2
Swedish krona 69.1 70.3 66.9 5.1 8.1 11.7 14.0 –0.5 2.0 1.6
Swiss franc 365.6 355.7 347.1 22.0 12.3 13.4 21.0 2.4 0.4 –1.0
US dollar 9,428.3 9,720.9 9,871.1 675.9 499.9 684.6 1,214.8 264.9 292.6 150.2
Yen 693.6 669.9 690.6 16.8 23.1 20.6 –41.3 –12.6 –15.4 –13.4
Zloty 12.6 12.1 10.3 0.4 0.4 3.1 –0.5 –0.2 –0.4 0.0
Memorandum item:
Domestic bonds and notes
Total issues 52,345.5 51,886.6 … … … 2,240.5 4,033.4 962.7 542.6 …
Medium-term notes 752.9 732.5 … … … 53.2 77.7 10.4 7.0 …
Bonds 51,592.6 51,154.0 … … … 2,187.3 3,955.7 952.3 535.6 …
Table 20B: Amounts outstanding of OTC foreign exchange derivatives

By currency
Notional amounts outstanding Gross market values
Currency Dec 2007 Jun 2008 Dec 2008 Jun 2009 Dec 2009 Dec 2007 Jun 2008 Dec 2008 Jun 2009 Dec 2009
All currencies 56,238 62,983 44,200 48,775 49,196 1,807 2,262 3,591 2,470 2,069
Australian dollar 2,227 2,396 1,360 1,741 2,325 76 105 135 110 97
Canadian dollar 2,404 2,226 1,568 1,735 1,858 134 93 123 95 78
Danish krone 241 224 195 203 213 5 6 10 5 5
Euro 21,806 25,963 18,583 20,653 20,364 790 1,010 1,409 1,032 864
Hong Kong dollar 988 857 608 422 297 5 13 4 3 3
Japanese yen 12,857 13,616 11,292 11,438 11,238 371 433 884 531 538
New Zealand dollar 60 58 28 15 11 2 1 3 1 1
Norwegian krone 420 478 369 223 238 10 14 38 10 7
Pound sterling 7,979 8,377 4,732 6,213 5,929 260 280 633 435 282
Swedish krona 1,525 1,589 1,178 1,255 1,309 29 30 88 54 39
Swiss franc 3,662 3,964 3,034 3,072 3,106 91 119 194 103 98
Thai baht 3 6 3 2 2 0 0 0 0 0
US dollar 46,947 52,152 37,516 40,737 40,921 1,471 1,838 2,846 1,961 1,662
Other 11,358 14,060 7,932 9,840 10,582 370 582 817 600 465
Table 20C: Amounts outstanding of OTC foreign exchange derivatives

By instrument, maturity and counterparty
Denomination of financial assets held by monetary authorities
The dollar has lost shares and euro has gained.

The US have lost relative economic weight (GDP)
Adjusted for GDP shares, the dollar has remained stable. This is because the US
has less economic (and political) muscle in the world, a phenomenon that has been
roughly mimicked by the decline of the international role of the dollar.
The euro has gained relative to the dollar as an international currency.
Two economic explanations:
I Ascendancy of the euro as an “international store of value” coincides with
the increased degree of efficiency, liquidity and integration of the euro

financial markets.
I Decline of the market share of the dollar results from its depreciation in the
foreign exchange market.

F There is little evidence in favor of the second explanation
F Chinn and Frankel (2007) regress currency shares on lagged dependent
variable, GDP ratios, inflation differences, forex turnover, and forex volatility.
Lagged term explains most of the variance. May reflect incumbency power of
network effects. This interpretation is consistent with the historical account
on the slow decline of the pound after WWI).

Denomination of financial assets held by monetary authorities (1)



Empire and The International Economic Order
There is an alternative explanation for the fact that the dollar has been holding up:
political hegemony:
The United States’ political leadership in security, commercial and even
cultural affairs globally has a critical impact on the usage of the dollar in the
monetary realm [. . . ] Private decisions to invest in the United States [. . . ]
are supported by the desire to gain insider access to key decision-making
processes and to membership in transnational elites; in fact, it is this desire
for membership and access that is a major source [. . . ] of the United States’
exorbitant privilege to pay for its current account deficits in its own currency.
The European Union, let alone the eurozone itself, is unable or unwilling to
offer these systemic or security benefits beyond a very limited area, and thus
is fundamentally limited in its ability to attract currency adherents, despite
the success of the euro on its own terms as a currency and store of value.
Adam Posen (2008, p. 80)
The value in having a political hegemon is that this country enforces integration in
the world and an international monetary order (Empire).
For this service, the hegemon imposes its money as the international money and
obtains the very special benefit of issuing debt in its own currency.

The financial crisis and dollar hegemony
The financial crisis has evolved into a sovereign debt crisis.

At the moment, the sovereign debt crisis is affecting primarily countries in the
EMU. This event is raising the probability of a euro break-up and consequently is
favoring the relative valuation of the dollar in the exchange markets.
But US budget deficits are large, US debt is growing rapidly and US monetary
policy is extremely expansionary.
The interesting question is: What might happen if the sovereign debt crisis were to
move onto the other side of the Atlantic?
I The dollar may lose the current international currency status
I US would have to borrow in foreign currency
I US interest rates would rise and US would no longer play the role of “buyer of last
resort”
I World-wide deflation.
I The demise of sterling and the slow rise of the dollar has been blamed as a reason
for the poor economic performance between the two world wars.
I What currencies may replace the dollar? The euro is not ready to play Empire. The
yuan has a long way to go. Cocktail currencies like the SDRs have failed.

The European crisis: Greece, 2010

Euro zone credit ratings

Cumulative Probability of Default and the cost of Greek funding
At mid-November 2010 the USA are making a few top ten lists (CMA data)
The probability of Greek default has surged in recent weeks as pressures in Europe have
reemerged.
The key differentiating factor between the USA and EU is the lack of true unity in EU.
Persistent rise in Greek funding costs, despite an ECB claiming to have everything under
control.

The European crisis: Ireland, 2010
Governance. If you merge 16 small open economies, you get a large closed
economy. But here is the catch. If you assemble the leaders of the 16 small open
economies, you get a roomful of 16 small-economy politicians.
Contagion. UK and German banks have loans outstanding of $149bn and $139bn.
A second channel of contagion is via the capital markets, to Portugal. The biggest
creditor to Portugal is Spain, itself in a precarious position.
Bail out. The EFSF has managed to find a way to offer loans with relatively low
interest rates. But the EFSF is not large enough to handle any problems that
might arise in Spain. In that sense, it is not an umbrella for the eurozone.
Solvency. Having already implemented structural reforms, at a time of extreme
fiscal tightening, moderate monetary tightening and weak global demand, how can
Ireland grow?
I Does Dublin really think to attract FDI by low corporate tax rates, given the current
uncertainties?
I Can Ireland really produce a devaluation to create an export boom?
Intra-eurozone imbalances. Germany’s current account surplus will head back
towards 7% of GDP by 2012. We are planting the seeds for the next crisis, for
which the EU has no institution, no facility and no task force.

Bailout or contagion?

The future of the euro

Your debt, your problem?
Maastricht Treaty
Art. 103 states the “no bail-out” clause, meaning that neither the Community
nor any Member State is liable for or can assume the commitments of any other
Member State.
But, Art. 100 introduces solidarity:
. . . “Where a Member State is in difficulties or is seriously threatened with severe
difficulties caused by natural disasters or exceptional occurrences beyond its
control, the Council . . . may grant, under certain conditions, Community financial
assistance to the Member State concerned . . . ”

EU and ECB response
Following severe dislocations in Euro-zone peripherals sovereign debt market:

I the EU announced a e750bn loan facility for Euro-zone governments facing
financing problems;
I extraordinary measures from the ECB to purchases selected sovereign
securities;
I the European Commission published proposal for tighter fiscal policy
coordination;
Are we on the verge of fiscal union in the EU to avert a large sovereign debt crisis?

Crisi Finanziaria, Crisi Del Debito Sovrano e Guerra Valutaria

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Crisi finanziaria, crisi del debito sovrano

Michele Fratianni — Andrea F. Presbitero

Università Politecnica delle Marche

MOFA — Master online di Finanza Ancona

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Bipartisan political responsibilities in increasing the housing demand (CRA, Fannie

Fratianni - Presbitero (Univpm – MoFiR) Crisi e monete ISTAO, 4 Dicembre 2010 2 / 46

Capital Mobility and the Incidence of Banking Crisis: All Countries,

0.3 1825 1980

Broker places mortgage LEGEND KEY

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Dependent variable Advanced Economies: Share of countries in default or restructuring

Country Year of Independence Share of years in default Total number of defaults

private) which is usually denominated in a foreign currency. When total

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The consequences of rising public debts

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National currencies tend to dominate foreign currencies as means of exchange

Fratianni - Presbitero (Univpm – MoFiR) Crisi e monete ISTAO, 4 Dicembre 2010 18 / 46

An historical example of slow currency substitution occurred during the German

Fratianni - Presbitero (Univpm – MoFiR) Crisi e monete ISTAO, 4 Dicembre 2010 19 / 46

An international currency is one that is used by non-residents as a medium of

Table: Roles of an international currency

Role Private use Official use

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low-inflation monies to high-inflation monies;

money. These costs decline as the transaction domain of a currency expands.

upcoming currencies, with similarly low transaction costs, may not be

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The Roman silver denarius was the first world currency.

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Used as a reference currency in defining fixed exchange rates

Used to invoice internationally traded goods and services

Used as a vehicle currency (that is as neither the exporter’s nor importer’s

Fratianni - Presbitero (Univpm – MoFiR) Crisi e monete ISTAO, 4 Dicembre 2010 24 / 46

During the international gold standard (1880-1914), exchange rates were

Fratianni - Presbitero (Univpm – MoFiR) Crisi e monete ISTAO, 4 Dicembre 2010 25 / 46

Most international commodities are priced in dollars: petroleum, gold, silver,

Fratianni - Presbitero (Univpm – MoFiR) Crisi e monete ISTAO, 4 Dicembre 2010 26 / 46

Invoicing US $ share in US $ share in Exporter currency share in Exporter currency share in

Fratianni - Presbitero (Univpm – MoFiR) Crisi e monete ISTAO, 4 Dicembre 2010 27 / 46

Percentage shares of average daily turnover

Fratianni - Presbitero (Univpm – MoFiR)

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Table 20B: Amounts outstanding of OTC foreign exchange derivatives

Table 20C: Amounts outstanding of OTC foreign exchange derivatives

The dollar has lost shares and euro has gained.

the increased degree of efficiency, liquidity and integration of the euro

foreign exchange market.

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