Christopher J Waller: Welcoming remarks on the international roles
of the US Dollar
Welcoming remarks by Mr Christopher J Waller, Member of the Board of Governors of
the Federal Reserve System, at the Third Conference on the International Roles of the
US Dollar, hosted by the Federal Reserve Board, Washington DC, 20 May 2024.
* * *
1
Thank you, Beth Anne, and thank you for the opportunity to speak to you today. I
would like to welcome everyone to this Third Conference on the International Roles of
the U.S. Dollar, which is jointly organized by the Federal Reserve Bank of New York
and the Federal Reserve Board.
When people talk about the "dollar," they are referring to a number of roles it plays on
the world stage-including a physical currency used worldwide, financial assets
denominated or redeemable in U.S. dollars, or a settlement unit used in transactions. In
all of these, the role of the U.S. dollar in global finance and its economic and financial
stability implications are of elementary importance to Federal Reserve. Participants in
the first and second installments of this conference discussed the different roles the
dollar plays in the global economy and how the primacy of the dollar benefits not only
the United States but also the rest of the world. U.S. households, for instance, benefit
from lower transaction and borrowing costs, while U.S. businesses and the U.S.
government benefit from deep financial markets, including a large pool of creditors and
investors. Households and businesses in foreign economies also benefit from access to
this broad pool of lenders and investors, which reduces their financing costs and fosters
global economic growth.
Despite all the benefits the dollar provides the United States and global economies and
the efforts to mitigate some of the financial stability challenges posed by its dominant
role, there has, for some time, been commentary predicting that the dollar is destined
2
for demise-potentially an imminent demise. Such predictions have not materialized.
The dollar remains, by far, the most widely used currency across a variety of metrics,
including as a store of value and a medium of exchange. However, the role of the
United States in the world economy is changing, and finance is always changing, so I
think it is important for policymakers to regularly consider if and why the dollar's role
might change as well.
This conference is a good venue to discuss some of the challenges and opportunities
for the international use of the dollar in this ever-changing financial landscape. For
instance, one of those challenges is the complex relationship between the dollar and
geoeconomics, commonly defined as the interplay between economic and geopolitical
tools and objectives. Rising geopolitical tensions, sanctions against Russia, China's
efforts to bolster usage of the renminbi, and economic fragmentation all can affect the
international use of the dollar, most visibly as a store of value and reflected in its use in
official foreign exchange reserves.
These same factors can also affect the dollar's role as a medium of exchange, such as
in its use in trade invoicing, global banking, international debt issuance, and foreign
exchange transactions. These topics will be addressed by two of our presenters today.
Linda Goldberg will present a paper addressing the effects of geoeconomic tensions,
focusing on the dollar's use in official foreign exchange reserves. Linda and her
coauthors find that financial sanctions and geopolitical distance from the United States
are associated with lower dollar shares in foreign exchange reserves. Looking more
broadly, Ryan Chahrour will present work exploring the potential effects of escalating
conflict and protectionism on the dollar's dominance in connection with efforts to
promote the use of other currencies such as the renminbi. He and his coauthors find
that both sanctions and policies that directly support the international role of the
renminbi may reduce the prominence of the dollar if these sanctions and policies are
long-lasting.
The shifting cross-border payments landscape-including the rapid growth of digital
currencies-could also pose challenges to the dominant role of the U.S. dollar. Angelo
Ranaldo will provide an overview of aspects of that payments landscape, focusing on
the world's largest multicurrency cash settlement system for foreign exchange, the
Continuous Linked Settlement payment system, and its role in facilitating cross-border
payments by reducing settlement risk. In the panel moderated by Michelle Neal this
afternoon, the panelists will take a broader look at the current landscape of
crossborder payment systems and how new technologies such as central bank digital
currencies and faster transactions could potentially affect U.S. dollar usage and global
capital flows. Stijn Claessens, in his keynote address, will expand on similar themes
and pose questions that still need to be explored by researchers engaged on this topic.
While recognizing that the U.S. dollar may face some challenges to its dominance in the
future, we, as policymakers, are also attuned to the potential financial stability
challenges that the current broad use of the U.S. dollar can pose for financial systems
in the United States and the rest of the world. For example, past experiences show that
foreign shocks can transmit to the United States when investors and governments seek
a safe haven to protect the value of their assets in periods of stress. Such a "flight to
the dollar" means that dollars are in especially high demand in funding markets around
the globe during these episodes, as we saw during the Global Financial Crisis and the
financial turmoil at the outset of the COVID-19 pandemic. The Federal Reserve
supports the use of dollars internationally through our liquidity facilities, including the
central bank liquidity swap lines, which provide foreign central banks with the capacity
to deliver U.S. dollar funding to institutions in their jurisdictions. Scott Davis and Moritz
Lenel will discuss the effectiveness of these swap lines in their respective papers. Using
different approaches, they find that the availability of U.S. dollars through central bank
swap lines mitigates the appreciation of the dollar with respect to other currencies in
episodes of stress and reduces deviations from covered interest rate parity. This
evidence suggests that the central bank swap lines not only ensure that credit
continues to flow to U.S. households and businesses, but also that these swap lines
have effects that enhance financial stability and, thus, the standing of the U.S. dollar as
the dominant global currency.
In closing, I would like to reiterate the importance of understanding how changes in the
global landscape may affect the central role of the dollar in the global economy and
financial system. I also want to thank you for taking the time to join the discussion over
the next two days. This conference brings together world-class researchers,
practitioners, and policymakers dedicated to understanding and addressing these
important topics.
1
The views expressed here are my own and are not necessarily those of my colleagues
on the Federal Reserve Board or the Federal Open Market Committee.
2
See Christopher J. Waller, "The Dollar's International Role," speech delivered at
"Climate, Currency, and Central Banking," a conference sponsored by the Global
Interdependence Center and the University of the Bahamas, Nassau, Bahamas,
February 15, 2024.