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Dominant Currency: Exploring Patterns and Drivers

Student: Viktoriia Shumilova

Supervisor: Sergey Stepanov

Faculty: Faculty of Economic Sciences

Educational Programme: Joint HSE-NES Undergraduate Program in Economics (Bachelor)

Final Grade: 9

Year of Graduation: 2023

The dollar and the euro play key roles in choosing the currency of lending, nominating trade, reserves holdings, etc. Previous studies have described models linking currency composition in trading, bank funding and reserves. The researchers tried to estimate how much the increase in the share of the dollar or euro in reserves is caused by an increase in the share of the dollar in bank liabilities and export invoicing, but here there is a problem of endogeneity, because everything is interconnected. In my research, I use instrumental variables to assess the impact of the choice of export currency on the share of this currency in cross-border liabilities and reserves. I use two instruments: the distance to the country issuing the currency and the complexity index. As the result, I show a high level of influence of the share of the dollar and euro in exports on their share in liabilities and FX reserves.

Full text (added May 31, 2023)

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