June 25, 2024 — A paper co-authored by Menzie Chinn, Hiro Ito, and me has just been published at the JIMF. It finds that US size, the ability of the dollar to hold its value, and inertia continue to support the dollar’s #1 status as an international reserve currency. And that the threat of sanctions against other countries has yet to impact aggregate global $ holdings by central banks. (Ungated WP version.)
Chinn, Frankel and Ito: “The Dollar versus the Euro as International Reserve Currencies”
May 27, 2024 — The European Union’s Carbon Border Adjustment Mechanism (CBAM) has begun asking EU importers to report data on emissions of greenhouse gases by their foreign suppliers (direct, but also indirect, i.e., embodied in the electricity they use). The first round of reports were due January 31 of this year. European importers are required by July to have established access to the data on emissions embedded in their suppliers’ products. The full CBAM regime, with European penalties against imports from countries that don’t price carbon as the EU does, will go into operation on January 1st, 2026. It will have a major impact on producers of carbon-intensive products among EU trading partners.
May 2, 2024 — Lots of countries are voting. Recent elections in a number of Emerging Market and Developing Economies (EMDEs) have demonstrated anew the proposition that major currency devaluations are more likely to come immediately after an election, rather than before one. Nigeria, Turkey, Argentina, Egypt, and Indonesia are five countries that have experienced post-election devaluations within the last year.
Economists will recall a 50-year-old paper by Nobel Prize winning professor Bill Nordhaus as essentially initiating research on the Political Business Cycle (PBC). The PBC refers to governments’ general inclination towards fiscal and monetary expansion in the year leading up to an election, in hopes of re-electing the incumbent president or at least the incumbent party. The idea is that growth in output and employment will accelerate before the election, boosting the government’s popularity, whereas the major costs in terms of debt troubles and inflation will come after the election.