Dr. Steffen Murau| steffenmurau.com

2020 | ‘The Hierarchy of the Offshore US-Dollar System. On Swap Lines, Foreign Repo Facilities and Special Drawing Rights’ (with Fabian Pape and Tobias Pforr)

The international monetary system is a US-centered global payments system, organized around the US-Dollar (USD) as ‘key currency’. One of the system’s essential features is that private institutions autonomously create USD-denominated private credit money offshore. To maintain par between onshore and offshore USD deposits in a crisis, the system is heavily dependent on emergency USD liquidity provision, in particular by the Federal Reserve, the hierarchically highest balance sheet. Yet as a domestic institution, the Fed does not lend directly to private institutions outside the US.

This paper conceptualizes international monetary hierarchy as the result of three mechanisms that shape access to offshore emergency USD liquidity provision for non-US central banks. The first-layer periphery receives emergency USD from the Fed through central bank swap lines. The second-layer periphery receives USD from the Fed through the new FIMA repo facility by pledging US treasuries as collateral. The third-layer periphery can access emergency USD only through the Special Drawing Rights (SDR) system, which is intermediated by the International Monetary Fund (IMF) and essentially distributes USD FX reserves of first and second-layer central banks to the third layer.

The paper details the mechanics of those three mechanisms and integrates them in a macro-financial model of the Offshore US-Dollar System. The analysis advances our understanding of how international hierarchy is constructed in the Offshore USD System. It chimes in with existing analyses of the Global Financial Safety Net and explains how the IMF and SDRs are integrated in the Offshore US- Dollar System.

Presented at EAEPE online conference (09/2020)

Fabian Pape, University of Warwick
Tobias Pforr, University of Reading


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