How has the international role of the US dollar evolved? -Part 4

The US dollar occupies a dominant position in international transactions and financial markets

The international role of currency can also be measured by its use as a medium of exchange. Several recent studies on the currency composition of global trade and international financial transactions have emphasized the dominance of the US dollar in the international arena. The US dollar is the most frequently used currency in global trade. From 1999 to 2019, the US dollar accounted for 96% of the American trade valuation, 74% in the Asia-Pacific region, and 79% in the rest of the world. The only exception is Europe, where the euro dominates.

Partly due to the dominant position of the US dollar as a transaction medium, it is also the dominant currency in the international banking industry. Approximately 60% of international foreign currency liabilities (mainly deposits) and claims (mainly loans) are denominated in U.S. dollars. This proportion has remained relatively stable since 2000 and is much higher than the proportion of the euro (about 20%).

Due to the particularly high demand for US dollar financing during the crisis, foreign financial institutions may face difficulties in obtaining US dollar financing. In response, the Fed launched two plans to ease the pressure on the international dollar financing market triggered by the crisis, thereby alleviating the impact of the pressure on the supply of credit to domestic and foreign companies and households. To ensure the availability of US dollar financing during the 2008-2009 financial crisis, the Federal Reserve and several foreign central banks introduced temporary swap lines, some of which became permanent in 2013. The Federal Reserve has increased the frequency of operations of conventional swap lines and introduced temporary swap lines with other counterparties. The Fed also introduced a repurchase loan to the Foreign and International Monetary Authority (FIMA), which has an account with the Federal Reserve Bank of New York and will be made permanent in 2021.