Currency Management - Articles & White Papers

In this edition of the Pension Fund Letter, we continue our discussions on this topic, looking at what it means for different types of pension funds and their KPIs, as well as possible ways of addressing the issue.

While bank deposits play an important role in a cash portfolio, Northern Trust believes there are opportunities to diversify to different types of cash investments.

While bank deposits play an important role in a cash portfolio, Northern Trust believes there are opportunities to diversify to different types of cash investments.

This study evaluates the relationship investor sentiment, exchange rate volatility, net foreign portfolio investment and the country index crash risk. The moderating variable, net foreign portfolio investment, is introduced. While previous crash risk studies typically focus on individual firms, this study takes a country-…

We examine how the tail risk of currency returns of nine countries, from 2000 to 2020, were impacted by central bank monetary and liquidity measures across the globe with an original and unique dataset that we make publicly available. Using a standard factor model, we derive theoretical measures of tail risks of currency…

Vanguard economists weigh in on why the dollar is the global reserve standard and the likelihood of an alternative emerging.

We show that in a popular model of exchange rate determination, the unobserved expected future exchange rate can be substituted with the observed forward exchange rate. This allows the derivation of a new error-correction forecasting model, which approximates the gap between the fundamental equilibrium exchange rate and the…

In this paper, we examine the prospects for, and implications of, the dollar’s continued pivotal role in the international financial system. We find, first, that the dollar remains dominant by a wide margin and will likely retain its dominance for the foreseeable future—none of the other contenders possess the liquidity,…

In early-13th century China, the Mongols introduced the silver standard, the first paper money in history to be backed by a precious metal. This column studies the rise and fall of paper money in 13-14th century China over three stages: full silver convertibility, nominal silver convertibility, and fiat standard. Military…

Back when Japanese companies sold their products overseas by predominantly exporting from Japan, yen depreciation was beneficial to Japan’s real economy. With so many Japanese companies now operating overseas through local subsidiaries, yen depreciation’s positive economic ripple effects are almost exclusively confined to…

A negative skew for Equities has been a structural feature since the 1987 flash crash, with academic literature pointing to a harvestable risk premium. FX risk-reversals drive the skewness of currencies risk-neutral spot returns but explain little of the skewness of future spot returns (Jurek, 2009). Studies on the…

The share of U.S. dollar assets in the official foreign exchange reserve portfolios of central banks sometimes is taken as an indicator of dollar status. The authors show that the observed decline in aggregate U.S. dollar shares is not from a systematic decline in preferences for dollar assets. Instead, it is due to monetary…

Bond markets moved with the waxing and waning of expectations of early policy rate cuts as central bankers intervened to dispel excessive optimism. Risky assets rallied, with still tight financial conditions easing substantially from their late-October peak. EMEs broadly followed the developments in AEs as yields fell and…

In this note, we explore these possibilities and argue that a CBDC in itself would likely only have a marginal effect on these international considerations, though its effect would depend on policy decisions by the United States and other jurisdictions as well as the impact of ongoing international efforts to improve…

Revisiting a theme considered by MI’s own Allison Schrager, a consideration of whether the mighty U.S. dollar – or any fiat currency – can withstand growing, record public debt levels and remain the global reserve currency of choice.

A unipolar world is more stable than a multi-polar world but is also more fragile. As the U.S. sinks under the weight of taxes, bureaucracy and regulation, debasement, and unrestrained immigration—the same pathologies that doomed Rome—its ability to project power declines. We see this currently in the Red Sea.

This paper explores currency investing with a focus on the carry risk premium over a period of 40 years from the viewpoint of a marginal investor that is constantly expanding his currency universe. I show that contrary to popular belief the carry premium has not declined since the Global Financial Crisis if investors…

This post analyses the adjustment of real carry measures by currency over- or undervaluation. As a reference point, it uses point-in-time metrics of purchasing power parity-based valuation estimates that are partly or fully adjusted for historical gaps. The adjustment is conceptually compelling and has historically increased…

After 25 years, the euro emerges as a testament to resilience and adaptation, having weathered significant challenges since its inception. A new Policy Insight by Marco Buti and Giancarlo Corsetti traces the euro’s journey through economic and institutional developments and proposes reforms to increase stability, resilience…

Year-end repo market pricing and liquidity are generally a focus of market attention, with the euro market proving itself particularly vulnerable to significant dislocations in recent years. The ERCC has published a review of repo market performance and conditions over the “turn” of the year since the wholly unexpected and…