进入21世纪的交流安排哪一个锚将起作用？

EXCHANGE ARRANGEMENTS ENTERING THE
TWENTY-FIRST CENTURY: WHICH ANCHOR WILL HOLD?*
ETHAN ILZETZKI
CARMEN M. REINHART Downloaded
KENNETH S. ROGOFF
Thi s arti cle provi des a comprehens i ve his tory of anchor or ref erence curren-
cies, exchan ge rate arrangement s, and a new measure of fo reign exchan ge res tri c- fr
om
ti ons for 194 coun tri es and t errit ori es over 1946-2016. We fi nd t ha t t he often cited https
pos t-Bre tton Woods t ransition fr om fix ed t o fl exible arran gement s i s overs t a t ed;
regi mes with li mited fl exi bi lity rem ai n i n t he maj ority. Even if central bankers' :
//academ
communi cati ons j argon has evolved consi derably i n recent decades, it i s apparen t
t hat many s till place a large i mpli cit weigh t on t he exchange rat e. The U. S. dollar
scores as th e world's domi nan t anchor currency by a very large margi n. By some i
c
.
oup
met r i cs, its use i s fa r wi der t oday t han 70 years a go. In cont ras t, t he global role of
.
8m/
t he euro app ears t o have s t alled. We argue t hat in ad dition t o t he usual safe as-
set s s t ory, t he record accumulation ofr eserves si nce 2002 may also have t o do with qj
e/a
many coun tries'desi re t o s t abi li ze exchan ge rate s i n an envi ronment of markedly
rti
reduced exchan ge rat e rest r i cti ons or, more broadly, capit al con t rols: an i m portan t cle,abs
amendmen t t o t he conventi onal portrayal of t he macroeconomi c t r ilemma. J EL
Codes: E5, F3, F4, N2 t
racU134/2/599/527
I. INTRODUCTION AND OVERVIEW
The a rti cle explores t he t rans fo rmati on of t he global exchange

rat e sys t em over t he pas t t wo decades i n ligh t of t he advent of
t he euro, t he r i se of t he Chi nese renmi nbi, t he t rend decli ne i n 4128
exchange rat e res t r i cti ons and capital cont rols, t he shift t oward
by
i n fl a tion t argetin g, and great er exchange rat e fl exi bility i n a num- gues
her of key emergin g marke t s. In t eresti n gly, we fin d t hat despite
t he wi despread predi ction t hat t he world i s evolvi n g t oward a t
on
16
*We t hank t he e ditors, Pol An t ras and Robe rt Barro, and fo ur anonym ous Oc
refe rees fo r t hei r useful comment s. We t hank Xavi er Gabai x, Matte o Maggiori, t
ober
KevinO 'Rourke, Vi ncen t Rei nhart, and seminar parti cipan t s a t t he Bank ofl n te r-
nati onal Settlemen t s, t he In t ernati onal Monetary Fund, t he AEA mee ti n gs, t he 2019
NBER In t ernati onal F i nance and Monetary Economics March 2017 meetin g, Har-
vard Uni versity, t he Bank of England, and t he CEPR-SNB-Bol Confe rence on For-
eign Exchan ge Market In t erven ti on fo r helpfu l commen t s and sugges ti ons. Lukas
Alt hoff, Kenyi Cansi no, Duygu Guven, Gonzalo Huertas, Patrici o Merlani, Paul
Schmelzing, and J ordan War provided out st anding research assi s tan ce. Coun try
chronologies and dat a can be fo und a t h ttp ://www. i lzet zki .com/irr-dat a.
el The Au thor(s) 2019. Publi shed by Oxford Univers ity Press on beh alf of the Presi den t and
Fellows of Harvard College. All righ ts reserved. For Permi ssi ons, please email:
j ournals.permi ssi ons@o up.com
The Quarterly J ournal of Economi cs (2019), 599-646. doi :10.1093/qje/qjy033.
Advance Access publi cation on J anu ary 5, 2019.
599
600 THE QUARTERLY J OURNAL OF ECONOMICS
more multip olar s ys t em, t he U. S. dollar rem ai ns by fa r t he mos t

i m port ant anchor currency (or i n t he case of more fl exi ble arran ge-
ment s, refe rence currency), pa rticularly when one consi ders t he
i n t egra tion of Chi na and t he fo rmer Sovi et bloc i n t o t he global Downloaded
financi al syst em and great er macroeconomi c st abi lity i n much of

La tin Ameri ca. Indeed, our analysi s of de fa ct o exchange rat e
arrangement s sugges t s t hat dollar cross-rat e s t abilizati on i s as
wi despread t oday as it was a t t he heigh t of t he pos t war Brett on fr
om
Woods fix ed exchan ge rat e sys t em. We also argue t hat combi n i n g https
our results on de fact o exchange rat e s t abi li zati on with t he com-
prehensi ve new measure of exchange rat e cont rols developed here :
//academ
sugges t s t he possi bility t hat many cent ral banks may be accumu-
lati n g out s i zed quantities of "saf e" advanced count r y bonds, partly
as a substitu t e fo r t he decli n i n g effective levels of exchange con- i
c
.
oup
t rols (see Farhi, Gouri nchas, and Re y 2011; Obstfeld 2013; Farhi
.
and Maggiori 2018). 8m/qje/a
Our fin d i n gs are consi s t en t with a growi n g recen t literat ure

t hat document s t he i ncreasi n g cent rality of t he dollar i n global
t raded goods prici n g and bond i ssuance, as well as t he out si ze rti
cle,abs
i n fluence of U. S. mone tary poli cy on asse t prices worldwi de (Rey
2013; Bruno and Shi n 2015; Gopi nat h 2015; Maggiori, Ni eman, t
racU134/2/599/527
and Schreger 2018).1 Indeed, t he fact t hat exchange rat e s t abi li za-
tion a pp aren t ly remai ns an i m port ant consi deration fo r so many
cent ral banks can be consi dered a port mant eau measure of t he
vari ous i mpact s of dollar volatility, i ncludi n g li abi lity dollari za-
tion and the sensitivity of a country's marke t s t o shifts i n global
r i sk. 4128
Our result s are based on a comprehensi ve his t ory of anchor
or reference currenci es, exchange rat e arrangement s, and a new by
measure of fo re ign exchange res t r i cti ons for 194 count r i es and t er- gues
r itori es over 1946-2016. Compared t o earli er exchange rat e clas- t

on
sificati on effort s, 2 we fo cus much more on classifyin g count r i es'
16
choi ce of anchor or "ref erence" currency (we also consi der basket Oc
t
ober
1.We should not e t hat ri si ng dollar dominance i s not a uni versal vi ew, with
some researchers arguing t hat because t he share of t he United St at es i n t he global 2019
economy i s decli ni ng, th e U. S. dollar's role as t he de fact o world currency i s likely
declini ng as well. Ei chengreen (2011), fo r example, argues t hat t he world i s headed
t oward a mul tip olar syst em where t he euro do mi nat es i n Europe, t he U. S. dollar i s
the anchor i n t he Americas, and t he Chi nese renminbi becomes t he mai n currency
i n Asi a .
2. These i nclude Rei nh art and Rogoff (2004), Shambaugh (2004), Levy-Yeyati
and St urzenegger (2005, 2016), and Klei n and Shambaugh (2010).
EXCHANGE ARRANGEMENTS 601
anchors). In prin ciple, any exchan ge rat e classificati on al gorithm

mus t s i multaneously de t ermi ne a country's choi ce of anchor cur-
rency (if any) and its de gree of fixity. Because of changes t o t he
global sys t em list ed above, i ncludi n g t he proliferation of candi- Downloaded
dat e anchors—p arti cularly t he euro—and great er exchange rat e

fl exi bi lity i n some emergin g marke t s, a s ignificant modificati on
g
and enerali zati on of t he classificati on al gorithm was re qu i red,
especi ally t o ti e down t he anchor currency i n several i m port an t fr
om
cases.3
https
Secti on II develops our anchor/re ference currency classifica-
ti on al gorithm and our classificati on of exchange arran gement s. :
//academ
We d i scuss why changes i n t he i n t ernati onal mone t ary s ys t em
re qu i re a new classificati on me t hodolo gy. We pa y particular a t-
t ention t o t he relatively new ques tion of how one d i stin gu i shes i
c
.
oup
bet ween freely fl oatin g exchange rat es (in whi ch t he cent ral bank
.
essenti ally only looks a t t he effect of exchange rat e changes 8m/qje/a
t hrou gh t hei r effect s on outp u t and i n fl a tion) from managed fl oat-

i n g re gimes i n whi ch cent ral banks t ake several broad actions t o
s t abi li ze exchange ra t es, especi all y i ncludi n g signifi cant i n t erven- rti
cle,abs
tion. The analys i s goes beyond exchange ra te-based i ndi cat ors,
for example, i ncorporatin g reserve holdi n gs and goods prici n g fo r t
racU134/2/599/527
borderli ne cases. Section III summari zes result s for anchor classi-
fi cation and for measures of de fa ct o exchange rat e classification.
No t ably, alt hough t here i s some t endency t oward more i n t ermedi-
a t e re gimes, t he world remai ns heavi ly skewed t oward less fl exi-
ble exchange rat e re gimes i nst ead of managed fl oatin g and freely
fl oati n g. This secti on looks a t t he t heory of anchor choi ce and ex- 4128
plores why one does no t see more evi dence of an expansi on of t he
euro's i n fl uence or t he emergence of a nascen t renmi nbi bloc. We by
also lay out a new dat a set on exchange rat e cont rols, a key piece gues
of t he so-called exchange rat e t r i lemma (see, e. g., Obstfeld and t

on
Taylor 2003 or Obstfeld, Shambaugh, and Taylor 2005). Alt hough
16
we do fi nd evi dence of a marked u ptick i n exchange rat e cont rols Oc
over t he pas t few years, t he longer t erm shows a marked t rend t
ober
decli ne. Secti on IV proceeds t o ask whet her t he t rend decli ne i n
cont rols migh t help explai n t he ri si n g demand fo r "safe asset s." 2019
3. Frankel and Wei (1994) made an early contri bu tion i n narrowing i n on t he

anchor currency ques tion, bu t t hei r analysi s i s restrict ed t o Eas t Asi a and uses a
different met hodolo gy based on atte mpts t o es ti ma t e weight s i n currency basket s.
In con t ras t, we provide a "holisti c" approach t hat t reat s t he anchor currency as
part of a broader exchan ge arran gemen t st ra tegy.
The concludi n g section looks forward and discusses t he possi bi l-

ity of t he renmi nbi emergin g as an a lternative t o t he dollar i n t he
future.
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II. ANCHOR CURRENCIES AND EXCHANGE 卧TE REGIMES:

METHODOLOGY
fr
Thi s secti on descri bes t he classificati on fr amework t hat we om
a pply t o t he 194 countri es (or t erritori es) t ha t make u p our sam- https
pi e i n 2016. The raw exchange rat e and i n fl a ti on dat a are mont hl y
g
and span J anuary 1946 t hrou h December 2016, a pproximat ely :
//academ
seven decades. The classificati on al gorithms perform t wo i n t er-

t wi ned t asks. F i rs t, t hey i dentify t he relevan t anchor currency for
c
each count r y over t he course of t he sample; second, t he y de fi ne t he
i
.
oup
exchange rat e arrangement by me tri cs t hat primarily (but no t ex-
gr
elusi vely) measure t he de ee of fl exibi lity. The approach expands
.
8m/qje/a
on previous effort s t o classify exchange arran gement s (e. g., Rei n-

hart and Rogoff 2004) i n t hat we (i) expli citly de t ermi ne t he anchor
or reference currency (we use "reference" i n t he case of managed
rti
cle,abs
fl oat s), (ii) allow fo r de fa ct o basket s of currenci es as anchors, (iii)

classify and anal yze de j ure infl a ti on t arge tin g cases, and (iv) pa y t
racU134/2/599/527
expli cit a ttenti on t o t he eurozone. Import antly, we are i n t erest ed
i n classifyin g exchange rat e re gimes, rat her t han exchange rat e
p racti ces a t h igh fre quency. Gi ven t hat an exchange rat e regime
i s a slow-movi n g phenomenon, t he crit eri a fo r evaluatin g it al-
mos t always i nvolve a multiyear wi ndow, typi cally of five years.
However, we provi de t he dat a a t mont hly frequency, whi ch gives 4128
h igh- fre quency estimat es of t he ti mi n g ofr egime shifts.

by
gues
II.A. The Changi ng Landscape
t
The evoluti on of t he global mone t ary s ys t em durin g t he fi rs t on
t wo decades of t he t wenty-first cent ury present s a number of chal- 16

Oc
lenges t o exi s tin g exchange rat e classificati on al gorithms, com-
t
ober
pellin g us t o s ignificant ly amend t he earlier classificati on al go-
rithm of Rei nhart and Ro goff (2004).4 F i rs t and fo remos t, t he 2019
4. The Rei nhart and Ro goff (2004) classifi ca ti on has been ext remely wi dely
used i n empirical macroeconomics across a wi de v ariety of t opics, for exam-
ple, Aghion et al. (2009) and Raj an and Subramani an (2005) on growth; Ai zen-
man and Lee (2007) and J eanne and Ranci ere (2006) on reserve accumulation;
Chin n and Wei (2013) and Ghosh, Qures hi, and Tsangari des (2013) on current
account adj ust ment; Hau and Rey (2006) on capital fl ows and equity prices;
advent of t he euro poses t he ques tion of whet her exchange rat e

re gime classificati on should be done a t t he supemati onal level, as
t he Int ernational Mone t ary Fund does (in whi ch case any reason-
able criteri on will fi nd t he euro a fl oatin g exchange rat e), or a t Downloaded
t he nation-st a t e level, as we do (in which case t he i ndi vi dual eu-

rozone countri es with t hei r largely i ndependent fi scal poli ci es are
better t hou gh t of as a syst em of fixed exchange rat es). In addition,
t he euro has become a very i m port an t candi dat e anchor/re f erence fr
om
currency. In several cases, we are forced t o draw on additional https
i n formation such as reserve holdin gs, prici n g practices, and re-
sponses t o extreme shocks t o classify a country's anchor/refe rence :
//academ
currency as t he dollar, euro, or a basket.
Second, a significant number of countri es have shifted t o some
v ari an t of i n fl a ti on t argeti n g. In some (bu t far from all) maj or i
c
.
oup
emergin g marke t economi es, thi s has led t o a no t able i ncrease
.
i n exchange rat e volatility, despite extensi ve exchange marke t 8m/qje/a
i n t ervention i n mos t cases.

Thi rd, even as some emergin g marke t exchange rat es have be-
come more volatil e, maj or-currency cross-e xchange rat e volatility rti
cle,abs
has gone t hrough a relatively subdued peri od. F igure I shows t he
absolu t e value of t he mont hly change i n t he dollar-Deut schmark t
racU134/2/599/527
cross-rat e from t he end of Bretton Woods t o t oday (the German DM
i s replaced by t he euro a fter 1999). Despite volatility's count er-
cycli cal nat ure, a clear secular decline i n exchange rat e volatility
i s vi si ble. (The dollar-yen cross-rat e shows a s i mi lar t rend.) The
combi nation ofr elatively low exchange ra t e volatility among large
advanced economi es t hat do no t i n t ervene versus t he rela tively 4128
h igh volatility of some emergin g marke t s t ha t heavily i n t ervene
forces us t o broaden our algorithm t o draw on additional i n for- by
mation, parti cularly on t he nat ure and i n t ent of foreign exchange gues
market i n t ervention. t
on
Il. B. Measuri ng Excha nge Ra te Flexi bility 16

Oc
Assignin g t he anchor currency and det erminin g t he exchange t
ober
rat e classificati on i s an i n t eractive si multaneous process. For ex-
positional pu rp oses, we begin by describi n g t he more fam iliar 2019
me t hodolo gy of classifyin g exchange ra t e fl exi bility and t hen de-

scribe t he anchor classificati on. We no t e t hat t he full classifi cati on
Mendoza and Terrones (2008) and J orda, Schularick, and Taylor (2015) on credit
fl ows;
Ball, Lopez, and Reyes (2013) on t he effect of remittances on t he macroe-
conomy; and Habi b, Biitzer, and St racca (2016) on t he effect of oil shocks.
3.2
2.8
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2.6
2.4
2.2
fr
om
1. 8
https
1. 6
1.4 :
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1. 2
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 200120032005 2007 2009 2011 2013 2015
i
c
FIGURE I .
oup
Declinin g Volatility i n Dollar-Deu t schmark (Euro) Exchange Rat e .

8m/qje/a
The figur e shows t he fo ur-y ear movi n g avera ge of t he absolut e value of t he
change i n t he dollar-Deutsc血ark bi lat eral exchan ge rat e from 1973 t o May 2018.
The euro replaces t he Deu t schmark from J anuary 1999. The s t raigh t line repre-
sents t he t rend. rti
cle,abs
i ncludes a coarse classificati on, i ncludi n g 6 cat egori es of exchange

rat e fl exi bi lity, and a fi ne classificati on, i ncludi n g 15 cat e gori es. t
racU134/2/599/527
The cat egori es are list ed i n Online Appendi x Table A. l. For ease
of exposition, t he descripti on here focuses primarily on the coarse
cat e gori es.
For t he 194 count r i es and t erritori es s t udi ed, t he raw da t a
i nclude t he mont h-on-mont h rat e of i n fl a ti on and t he absolut e
4128
value of t he mon thly change i n t he (average) spot exchange rat e.
We deno t e t he latter as Bn, t for count r y n i n mont h t. The ex- by
change rat e i s evaluat ed a ga i ns t 11 candi dat e anchor currenci es.5 gues
The candi da t e anchors were chosen based on h i s t ori cal prac ti ce
and currenci es t hat are wi dely i ncluded i n exchange rat e basket s. t
on
Currenci es t hat are classified as freely fl oati n g become candi da t e 16
anchors i n t he relevan t years.6 In t he current classificati on, t he Oc
Chi nese renmi nbi i s no t consi dered a candi dat e anchor because it t
ober
has been st rongly li nked t o t he dollar and i s no t convertible. In 2019

Secti on III we d i scuss t he possi bi lity t ha t some currenci es may
5. The candi da te anchors are t he U. S. dollar, t he Deut schmark and French

fr anc (replaced by t he euro followi n g 1999), t he J a panese yen, t he British pound,
t he Russ i an ruble, t he Swi ss franc, t he Aus t rali an dollar, t he Sout h Afri can rand,
and t he Brazilian real.
6. Thi s adds t he Canadi an dollar and t he Turki sh li ra i n some years.
be lat ently anchored t o t he renmi nbi, but fo r mos t of our sample,

anchori n g t o t he dollar and renmi nbi i s observati onally e quiva-
lent. F i nally, we allow fo r de fact o currency basket s as pot enti al
anchors. Basket s i nclude dollar-euro, dollar-yen, euro-yen, and Downloaded
dollar-euro-yen, with e qual weigh t s on t he anchors i n each bas-

ke t. We d i scuss de fact o basket s i n more det a i l i n Section II.D.
The classificati on al gorithm begins by separating currenci es
with parallel marke t s. Where dat a on parallel exchange rat es are fr
om
avai lable, we use t hese dat a alon gsi de t he offi ci al dat a t o classify https
t he exchange rat e arran gement .7 We t hen separat e freely fallin g
currenci es (cat e gory 5) as t hose whose year-on-year i nfla ti on ex- :
//academ
ceeded 40% fo r 12 consecutive mont hs. The freely falli n g regimes
typically a ri se i n t he cont ext of pro t ract ed (even chroni c) economi c
crise眨 We also i nclude i n t h i s cat egory "currency crashes," de- i
c
.
oup
fi ned as mon t hs where t he currency depre ci a t ed by 25% (mont h
.
on mont h) and t h i s rat e of depreci a ti on was 10 percent a ge poi n t s 8m/qje/a
great er t han that of t he previ ous mon t h. Furthermore, we clas-

sify t he six-mont h window followi n g such a cri si s as freely f allin g.
Thi s d i mensi on ofo ur algorithm separat es the cases where t he ex- rti
cle,abs
change rat e undergoes large fluct uati ons due t o a lack of mone t ary
cont rol (often accompani ed by the deple ti on of foreign exchange t
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reserves and ot her cri s i s s ympt oms) from currenci es t hat fluc t uat e
freely i n t ran qu il ti mes.9 Toge t her, t hese feat ures of t he al gorithm
provi de a classificati on t hat separat es severe currency cri si s pe-
r i ods (temporary or persi s t ent) fr om t ran qu i l ti mes. The d i s tinc-
tion bet ween a currency "crash" and "turbulence" i s a matter of
gr
degree. For example, E i chen een, Rose, and W losz (1996) con- yp 4128
si der bot h an ext reme defi n iti on of a currency cri si s (two or more
s t andard devi a tions i n t hei r exchange market t urbulence i ndex) by
gues
7. Where dat a on t he dual exchange rat e are unav ailable, we classify t he t

on
coun try as having a parallel market with unav ailable exchange rat e dat a (category
16
6). Given t he decline i n parallel marke t s over time, t he use of parallel marke t dat a
also diminishes t hrough our sample peri od from 50% of countries at t he beginni ng Oc
of t he sample t o less t han 5% at its end. t

ober
8. For example, freely falli ng i s particularly wi despread among th e coun t ri es
t hat defa ult ed on t hei r sovereign debt i n t he early 1980s and rem ai ned i n defa ult 2019
fo r nearly a decade.
9. Thi s dimensi on of t he algorithm, for i ns t ance, places t he Sout h Korean won
i n t he freely falli ng cat egory from December 1997 t hrou gh J une 1998, and more
recently, t he Russi an ruble from November 2014 t hrough t he beginni ng of 2016.
Duri ng its famous 2007-2008 cri si s, t he Icelandi c krona only j us t mi sses t he crash
cu t off.
and a m i lder versi on (turbulence rat her t han cri s i s).1° For reasons
we d i scuss lat er, our algorithm does no t t reat pe ri ods of elevat ed
t urbulence (whi ch do no t mee t t he cri s i s de fin iti ons) as a separat e
cat e gory. Downloaded
Next, when a count r y had a preannounced exchange rat e ar-

rangement, we verify whe t her t he exchange rat e followed t he
announced rule. Thi s i ncludes cases where t he cent ral bank i s
anchored t o a basket of currenci es w ith basket weigh t s t ha t are fr
om
publi cly avai lable. O therwi se, we use our al gorithm t o classify ex- https
change rat e arran gement s i n t o fo ur cat e gori es t hat can be roughly
described as pe gs (cat e gory 1), narrow bands (cat e gory 2), broad :
//academ
bands and managed fl oati n g (cat e gory 3), and freely fl oatin g (ca t-
e gory 4). We describe i n Section II. C how t he d i s tincti on be t ween
mana ged fl oat s and fr eely fl oating i s made. i
c
.
oup
Currenci es whose absolut e change vi s-a-vi s t he anchor cur-
.
rency was less t han 1% are classified as pe gs. Thi s fo llows t he de 8m/qje/a
j ure convention of t he Bretton Woods s ys t em, whi ch allowed fo r

1 % fl uct uati ons w ith i n t he s ys t em of fix ed exchange rat es. Spe cif-
i cally, we classify a currency as bei n g pe gged if the exchange rat e rti
cle,abs
changes b y less t han 1% i n absolut e value fo r 80% of consecutive
mont hly observati ons (P(cn, t < 1%) > 80%) 卫 Bands are assessed t
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i n a five-year rollin g w i ndow, but t wo-year w i ndows are used t o
dat e s t a rt and end poi n t s. 12
Narrow (wi de) bands are defin ed as allowi n g fl uct uati ons of
2% (5%) v i s-a-vi s t he anchor currency. These bands were chosen
based on common exchange rat e practices.13 Formally, we classify
4128
10. One and a half st andard devi ati ons in t he index i s consi dered i n t hei r
sensitivity anal ysi s. by
11. If t hese adj us t ment s are mai nly in one di recti on (70% of t he time), we gues
classify t he currency as havi ng a crawli ng peg (cat egory 7) rat her t han a hard peg
(ca t egory 4) i n t he fi ne classifi ca ti on. t
on
12. In addition, currenci es t ha t had exac t ly 0% change fo r fo ur consecu tive 16
mon t hs are classified as pegs i n t hese mont hs. Oc
13. For example, t he Nati onal Bank of Denmark has a de j ure band of t
ober
土2.25% agains t t he euro (al t hough we fi nd t hat t he band i s smaller i n prac-
tice). Several euro access i on coun tri es have had 2% de j ure bands (e. g., Cyprus, 2019
and t he Czech and Slovak Republi cs). Si milarl y, t he offi ci al poli cy of t he People's
Bank of China si nce 2015 has been t o li mit renmi nbi fl uct uati on with respect t o a
baske t of currenci es t o be within a 2% band. In t hi s peri od t he renmi nbi exchange
rat e vi s-a-vi s t hi s basket has always changed by less t han 2% i n absolut e t erms.
In cont ras t, t he renmi nbi saw mon t hly changes exceedi ng 1% i n a quarter of all
mon t hl y observati ons. Thus a de fa ct o classificati on t hat differenti at es be tw een a
1% and a 2% band would di scri mi nat e be tween t hese cases.
a currency as havi n g a narrow band w ith respect t o its anchor if

t he exchange rat e changes b y less t han 2% i n absolut e value a t
leas t 80% o f t he time (P(cn, t < 2%) > 80%) 卫 In t he earli er l itera-
t ure, an 80% t hreshold proved a good rule of t humb fo r defin i n g a Downloaded
w i de band, yi eldi n g qu ite robus t result s. 15 However, as shown i n

F igure I , exchange rat e vola til ity has been more mut ed recently
t han i n t he past, and essenti all y all currenci es would be classified
as fl uct uatin g w ith i n a w i de band based on t h i s c rite ri on. In fac t, fr
om
t he b i lat eral dollar-euro-yen exchange rat es all fluct uat ed b y less https
t han 5% 90% o f t he ti me i n t he pas t decade.
Accordi n gl y, we have adapted t he al gorithm t o t he t wen ty- :
//academ
fi rst cent ury and de fined a currency as fluct uatin g w ithin a w i de
band if it showed absolut e mont hly changes o f less t han 5%, i n
=
100% o f observati ons (P(cn, t < 5%) 100%).16 Thi s crite ri on de t er- i
c
.
oup
m i nes a number o f cases. For example, Ghana had an o ffici al pol-
.
i c y o f exchange rat e i n t ervention duri n g and followi n g t he global 8m/qje/a
fi nanci al cri s i s o f 2008-2009, and t he al go rithm i den tifies t hat

this cent ral bank continues t o have a w i de band followi n g t he
cri s i s. Thi s c riteri on also helps class ify Sout h Korea as havi n g rti
cle,abs
a w i de band w ith res pect t o the dollar i n t he early 2000s. Thi s
precedes a peri od when Sout h Korea had a narrower band and i s t
racU134/2/599/527
consi s t ent w ith volumi nous narra tive e vi dence t hat t he count r y
14. Thi s cat egory also i ncludes crawlin g pegs (cat egory 7 i n t he fine classi-
fi cati on), as described i n no t e 13. We not e t hat t he 80% crit eri on allows some
fl exibility for exchange rat e movements-an avera ge of tw o a year withi n an —
ot herwi se fi xed exchan ge rat e re gi me. Allowi n g thi s wiggle room i s i mportant for
4128
several reasons. Fi rst, some cent ral banks may have occasi onal parity chan ges
withi n an ot herwi se fi xed exchan ge rat e re gime. Second, cen t ral banks may eval-
by
uat e exchan ge rat e t arget s based on differen t criteri a t han we do (end of peri od
i nst ead of average exchan ge rat es or a t a differen t frequency t han our mont hly gues
dat a). This would lead t o some devi a ti ons from t he bands when evalua t ed by our
t
criteri a. Thi rd, parallel exchan ge rat es may devi a t e from t he band even i n t he on
con t ext of a largely fi xed exchan ge rat e re gime. If an exchan ge rat e i s within a 2% 16
band but adj ust ment s are m ai nly i n one di recti on (70% of t he ti me), we classify Oc
t he curren cy as havin g a crawli n g band, si mi lar t o t he definiti on of a crawli n g peg. t
ober
15. Rei nh art and Rogoff (2004) used a s i mi lar procedure to classify wi de bands
as refl ecti n g changes ofl ess t han 5% i n absolut e value a t leas t 80% of t he time. 2019
16. We do no t reclass ify tw enti et h-cent ury regimes re t ros pec tively based on
thi s criteri on. Thi s i s i n t en ti onal, as t he definiti on was adapted t o t he lower ex-
chan ge rat e volatility i n t he tw enty-first cen tury. Det ermini n g t he break poi n t
based on t he t urn of t he millenni um i s perhaps arbitr ary, but Figure I illus-
t rat es t hat t he decline i n volatility was a con tinuous process, givin g no obvious
breakpoi n t. Thi s cat egory also i ncludes crawli n g bands (cat egory 11 i n t he fi ne
classificati on) as defi ned i n no t e 14.
has a ttempted t o li m it exchange rat e volatility vi s-a-vi s t he dollar

over t he pas t t wo decades.
We no t e t hat it i s t oo soon t o de t ermi ne whe t her t he decli ne
i n volatility among advanced economy currenci es i s a t emporary Downloaded
y
or longer-las ti n g phenomenon. Al t hou gh it i s be ond t he sco e of p
this a rti cle t o i nves tiga t e its causes, among possi ble explanations
are t he t rend decli ne i n i n fl a ti on rat es t hat has charact eri zed t h i s
peri od possi bly rei n forced by t he unusually h igh de gree of syn- fr
om
chroni city i n mone t ary poli cy from t he erupti on of t he cri si s i n https
2008 up until the end of 2015, a t which poi n t t he Federal Re-
serve embarked on t he process of unwi ndi n g from t he post cri si s :
//academ
policy s timulus ahead of t he ot her maj or cent ral banks.17 Nei-
t her explanation res t s on a change i n t he exchange rat e arrange-
ment s of t hese count r i es. As t o how i n t ernati onal t urbulence (as i
c
.
oup
opposed t o a domes tic currency crash) a ffect s exchange rat e pol-
.
i cy i n emergin g and developin g economi es, t he range of observed 8m/qje/a
out comes i s broad and het erogeneous; some count r i es have used
t urbulent times t o allow for significant currency depre ci a tion as
a boost t o competitiveness, while ot hers have shown an i ncreased rti
cle,abs
"fe ar of fl oatin g" as concerns about capital fl ow reversals and
balance sheet effect s domi nat e t he poli cy response. This cross- t
racU134/2/599/527
country he t erogeneity i n t he behavi or of t he exchange rat e i n
peri ods of heigh t ened i n t ernational t urbulence suggest s t ha t a
separat e cat e gory i s unwarrant ed. Furthermore, our emphasi s i s
on t he exchange rat e re gime (as our use of rolli n g five-year wi n-
dows highligh t s), no t i n descri bi n g what are possi bly short -li ved
changes i n t he poli cy reacti on fu ncti on of cent ral banks duri n g 4128
bout s of t urbulence.
All rem ain i n g cases are classified as fl oatin g. The followi n g by
secti on describes our procedure t o separat e currenci es t hat are gues
freely fl oati n g from managed fl oat s. t

on
II.C. Managed or Freely Floati ng? 16

Oc
Changes i n t he i n t ernati onal mone t ary landscape pose new t
ober
diffi culti es in di sti n gui shing cent ral banks t hat manage t hei r
fl oatin g exchange rat e from t hose t hat allow t hei r currency t o 2019
fl oat freely. In t he tw en ti et h cent u ry, it was rare fo r emergin g mar-

ket s t o allow t hei r currency t o fl oat freely (except durin g currency
cri ses). In cont ras t, i n t he t wenty-first cent u ry, we classify 17
17. The positive relati onship be t ween i nfl ati on levels and t hei r volatility i n
F i scher and Modigli ani (1978) can plausi bly ex te nd t o exchange rat e volatility.
currenci es as fl oatin g (over a t least part of t he sample), t he maj or-

ity of whi ch were from m i ddle-i ncome economi es, and a number of
whi ch were from low-i ncome economi es. Earli er work (Rei nhart
and Rogoff 2004) used exchange rat e volatility criteri a t o weed Downloaded
out exchange rat es t hat were managed amon g fl oat ers. However,
fl oati n g emergin g marke t currenci es appear t o be more volatile
on average t han t hose of advanced economi es despite subs t an ti al
i n t ervention i n fo reign exchan ge marke t s. Thi s makes it difficult fr
om
t o const ruc t a count erfac t ual as t o how volatile emergin g mar- https
ke t currenci es would have been if t hey had been allowed t o fl oat
freely. :
//academ
Our new a pp roach i s based on a narrative assessment of cen-
t ral bank practices. The narratives are fully summari zed i n On-
line Appendix l. Our poi n t of departure i s t hat a freely fl oatin g i
c
.
oup
exchange rat e regime i s i nconsi s t ent with fre quent exchange rat e
.
i n t ervention with t he expli cit a i m of managin g t he level, pa t h, 8m/qje/a
or vari ability of t he exchange rat e. The narratives provide evi-

dence where cent ral banks used either foreign currency reserves
or capital cont rols as i ns t rument s t o a ffect the exchange rat e and rti
cle,abs
where t here i s a preponderance of evidence t ha t t he i n t erventi on's
i n t ent was exchange rat e management. Sources i nclude cent ral t
racU134/2/599/527
bank mi nut es, reports, and s t a t ement s; t he IMF's Annual Report
on Exchange Arrangement s and Exchange Res tri cti ons; OECD
and BIS reports; t he U. S. Treasury's bi annual Report t o Congress
on Int ernati onal Economi c Exchange Ra t e Poli ci es; cent ral bank
dat a on reserve holdi n gs and ne t foreign exchange purchases;
press report s; and country-specific research. These narrative as- 4128
sessment s are a ppli ed only t o peri ods when a currency fl uct uat ed
out s i de of t he 5% band described i n Section II.B. by
Our classificati on i s conservative (pot enti ally bi ased t oward gues
classifyin g countri es as freely fl oatin g) for tw o reasons. Firs t, cen- t

on
t ral banks may manage t he exchange rat e usi n g ot her i ns t ru-
16
ment s t han t he t wo menti oned, mos t no t ably t he i n t erest rat e, Oc
but also by t r yin g t o manipulat e expect a tions. For example, some t
ober
of t he countri es classified as fr eely fl oatin g (e. g., Aust rali a, Sout h
础ca) have a de j ure mana ged fl oati n g poli cy i n t hat t he cent ral 2019
bank expli citly reserves t he righ t t o i n t ervene i n foreign exchange

marke t s t o li m it "ext reme" volatility. Second, t here may be cases
where we are unable t o det ect i n t ervention due t o dat a limita-
tions. For example, we have limited i n fo rmation about Brazil's
foreign exchange i n t erventions i n t he early 2000s and have t here-
fo re classifi ed t h i s epi sode as freely fl oatin g.
The mai n conclusi ons can be summari zed as follows. In addi-

tion t o t he t hree mai n reserve currenci es (dollar, euro, and yen),
14 currenci es were classified as fl oati n g fo r a t leas t one year s i nce
2000. Floatin g exchange rat e practi ces fall i n t o t hree mai n cat e- Downloaded
gori es. F i rs t, t he cent ral banks of Aus t rali a, Canada, Sout h Afr i ca,
and t he United Kin gdom virtually never i n t ervened i n foreign ex-
change marke t s durin g th i s peri od 18 and held reserves an order
of magnitude lower t han ot her cent ral banks i n t he sample. Sec- fr
om
ond, t wo cent ral banks (Brazi l and Turkey) a ppear t o have bri efly https
a ttempted t o fl oat t hei r currenci es freely i n t he peri od 2000-2010
but reanchored t hei r exchange rat es and i n t ervened regularly as :
//academ
t he global fin anci al cri si s unfolded. The t h i rd cat e gory i ncludes all
remai n i n g cases, where cent ral banks i n t ervened re gularly bo th
before and durin g t he global fi nanci al cri si s. i
c
.
oup
We classify J apan as a freely fl oatin g currency, but t he narra-
.
tives illus t rat e t hat t h i s i s a borderli ne case. The Bank of J a pan 8m/qje/a
i ncreased its already vas t war chest of fo reign exchange reserves

over t he pas t decade. These may have been part of a broader quan-
tita tive easi n g st rat egy with no clear exchange rat e obj ectives. rti
cle,abs
However, it i s very possi ble that foreign exchange i n t erventi ons
around 2012 were expli citly t arge t ed a t cappi n g yen a ppreci a ti on. t
racU134/2/599/527
In concludi n g t h i s secti on, it i s i mportant t o no t e t hat t he
di stincti on bet ween a managed fl oat and freely fl oati n g i s no t
t erribly consequential for many macro i ssues, and i n cases where
it i s i m portant, our fine 15-bucket classificati on can be used where
t he weigh t s are very si mi lar, with a freely fl oatin g bei n g a 13 and
managed fl oatin g a 12. 4128
II. D. Anchor or Reference Currency by

gues
Obvi ously, any classificati on scheme (e.g., Levy-Yeya ti and
St urt zenegger 2005; Rei nhart and Rogoff 2004; or Shambaugh t
on
2004), needs t o t ackle t he anchor i ssue, but as we have no t ed, t he 16
evoluti on of t he global exchange rat e syst em over t he pas t t wo Oc
decades has made t he i ssue less s t r aigh tfo rward i n many cases. t
ober
Here we describe our a pproach.
Beyond t he mai n anchor currenci es, we also allow for t he 2019
possi bi lity t hat a currency i s anchored t o a basket of currenci es.

To do t h i s, we fi rs t verify whe t her t he cent ral bank has an offi-
ci al basket. If this i s t he case, we i nclude t he offi ci al basket as a
18. There were rare and brief excepti ons in t he days fo llowi ng September 11,
2001, and t he collapse of Lehman Brot hers i n Septe mber 2008.
candidat e anchor. Second, we allow fo r the possi bi lity t ha t a cur-

rency was anchored de fa ct o t o a basket consi s ti n g of any pa i r
among t he dollar, yen, and euro or t o a basket of t he t hree. All de
fact o basket s have equal weigh t s for i ncluded anchors. Downloaded
Alt hou gh t hese res tri cti ons may appear arbitrary, we fin d
t hem i n formative fo r a number of reasons. A more vari ed set of
candi dat e basket s would lead t o spu ri ous classificati on of curren-
ci es t o narrow bands. For any currency, one can fi nd a basket with fr
om
some anchor currency weigh t s, t o whi ch a given currency i s virtu- https
ally pegged with i n a short enough wi ndow. 19 Alt hough i n principle
basket s may cont a i n any number of currenci es, it i s i mportant t o :
//academ
reco gni ze t hat our classificati on shows t hat only seven are act u-
ally freely floatin g. Thi s means t hat any currency anchored t o a
basket contain i n g many currenci es i s i m plicitly anchori n g t o a f ar i
c
.
oup
smaller number. For example, t he People's Bank of Chi na (PBC)
.
publi ci zed t he weigh t s i n its re ference basket i n lat e 2015. The 8m/qje/a
dollar had a 26% weigh t i n t he basket, but t he basket also pu t

subst an ti al weigh t s (nearly 20%) on currenci es t hat were t hem-
selves pegged or closely anchored t o t he dollar (the Hong Kong rti
cle,abs
and Si nga pore dollars, Myanmar rin git, and Thai baht). Hence
a classificati on t hat t ook t he basket weigh t s a t fa ce value would t
racU134/2/599/527
grossly unders t a t e t he ext ent t o whi ch t he renmi nbi continues
t o be anchored t o t he dollar. 2° F i nally, t hese si m ple basket s are
i n formative and i n t u itive. It i s i n t eres tin g, for example, t hat t he
dollar-euro basket was t he only one t o which even a small num-
ber of currenci es were anchored. No country has had a de fact o
dollar-yen basket or a dollar-euro-yen basket as its anchor. The 4128
rare cases of de fact o basket anchors were also i n t u itive: for exam-
ple, t he Icelandi c krona over t he pas t decade and t he Polish zlo ty by
as it t ransitioned from a dollari zed economy i n t he lat e 1990s t o gues
a euro anchor i n t he early 2000s. 21 t

on
16
19. Our a i m i s si mi lar t o Frankel and We i (1994), Frankel (2008), and Frankel Oc
and Xi e (2010), who a ttem pt to esti mat e baske t weigh t s. We re qu i re a different t
ober
approach due t o t he j oi n t t ask of classifyin g anchors and exchange rat e fl exibi lity.
20. In t he parti cular case of China, we also allowed fo r t he possi bility t hat t he 2019
renm i nbi was anchored de fact o t o t h i s de j ure baske t in t he years befo re it was
offi ci all y announced. It was not .
2 1. In fut ure research, it will be i n t eres ti n g t o assess t he de fact o basket
correspondi n g t o t he renmi nbi 's curren t de j ure one. At t he time of writin g, it i s
t oo soon t o t ell: i n t he t hree years since t he basket was announced, t he de fact o
dollar-euro baske t performs sligh t ly better t han t he offi ci al baske t itself, but one
should not e t hat thi s was a period of dollar a ppreci a ti on and t he al gorit hm would
be best t es te d over a longer peri od, i ncludin g dollar weakness.
Our al gorithm fo r anchor currency classificati on proceeds as

y
follows. If a currenc i s i dentified as fr eely fl oatin g (or falli n g)
it i s classified as havin g no anchor or re fe rence currency (i n t he
figu res t hat fo llow it will be t reat ed as anchored t o itself). At t he Downloaded
ot her end of t he spect rum, countries with arrangement s t ha t are

fully pe gged can be classified unambiguously. With t he relativel y
low volatility among anchor currenci es i n t he pas t decade, it was
possi ble t o be with i n a 2% band of more t han one anchor (or fr
om
basket s t hereo f) fo r 80% or more of all observati ons. To arbitrat e https
these cases, we used a procedure based on bands of士 1%, 2%,
and 5% around t he candi dat e anchors. If a currency was within :
//academ
a narrower band of a s i n gle anchor than any other, t he currency
was assigned t h i s anchor. 22 If more t han one anchor mee t s thi s
criteri on, t he anchor i s chosen based on t he larges t number of i
c
.
oup
observati ons t hat are with i n an even narrower band.
.
For example, t hroughout t he peri od 2000-2015, t he Georgi an 8m/qje/a
i ari sati s fi ed our criteri on fo r a 2% band a gains t bot h t he dol-

lar and an equally weigh t ed dollar-euro basket. However, it was
with i n a 1% band of t he dollar fo r 70% of observations compared rti
cle,abs
with 50% relative t o t he basket. Georgi a was t here fore assigned
a dollar anchor. In cont ras t, the Icelandi c krona was w ith i n a 5% t
racU134/2/599/527
band of bo t h t he euro and t he dollar-euro basket i n t he peri od
2009-2015. However, it was with i n a 2% band only of t he basket
and was t here fore assigned a dollar-euro basket anchor. In t hese
borderli ne cases, we check whe t her t he algorithm provi des an-
swers consi s t ent with ot her sources of evi dence. For example, t he
Georgian economy i s h ighly dollari zed, whereas Icelandi c t rade 4128
i s denomi nat ed i n dollars and euros i n roughly equal shares. 23
Beyond provi di n g a consi s t ent summary s t a tis ti c of t he anchor by
currency, t he al gorithm oft en classified cases t hat m igh t ot her- gues
wi se have been elusi ve. 24 t

on
16
22. As i n t he discussi on of exchange rat e fl exibi lity, a 1% or 2% band re qui res
Oc
t he currency t o fl uct uat e withi n t he band for 80% of observati ons, while t he 5%
band requires t he currency to be withi n t he band 100% of t he ti me. t
ober
23. Our corroborative evi dence i s not ed i n t he compani on chronolo-

2019
gies t o t hi s arti cle (Il ze t zki, Rei nh art, and Rogoff 2017, with updat es at
https://www. ilzet zki .com/irr-dat a).
24. A case i n poi nt i s Madagascar, whi ch was classified as a dollar-euro anchor.
Based on narrative evi dence alone, t he dollar, euro, and a baske t would all appear
t o be reasonable classifi cati ons. The al gorithm provi ded an unambigu ous answer
(dollar-euro anchor). It i s also reassuring t hat t he algorit血 classifi ed a number
of cent ral banks with de j ure basket s into t he "basket" cat egory.
In betw een exchan ge rat e bands and freely fl oatin g exchange

rat es are managed fl oat s, a relatively fl exible arran gement i n
whi ch t he cent ral bank expli citly (or i m pli citly) still places a sig-
n ificant weigh t on exchange rat e st abili zati on. However, i n t hese Downloaded
cases we refer t o t he dollar (or ot her anchor) as a "refe rence" cur-

rency rat her t han an "anchor" currency. It would be d ifficult t o
classify a re ference currency for t he 10 managed fl oatin g epi sodes
i n our sample usi n g i ndi cat ors of exchange rat e volatility alone. fr
om
We t herefore use additional criteri a t o assign a re ference currency https
fo r managed fl oat s.
Table I li s t s t hese cases and t he supplement ary i n formati on :
//academ
used陟 We use fo ur separat e criteri a t o assign a ref erence cur-
rency t o t hese countri es. Firs t, i n whi ch currency i s t he maj ority
of fo reign t rade i nvoi ced? Second, i n whi ch currency i s t he largest i
c
.
oup
share of ext ernal (publi c and publi cly guarant eed) debt denomi-
.
nat ed? Thi rd, whi ch currency makes u p t he largest share of cen- 8m/qje/a
t ral bank fo reign reserves? F i nally, which was t he mos t recent an-
chor currency? Conveni ent ly, all fo ur i ndi cat ors poi n t t o t he same
reference currency i n almos t all countri es i n t he t able. In Online rti
cle,abs
Appendi x 2, we propose an i ndi cat or fo r refe rence classifi cati on
t ha t a ggrega t es t hese four measures. However, t he four measures t
racU134/2/599/527
are st rat egic complement s, and we t h i nk it i s no coi nci dence t hat
t he y give consi st ent predi ctions. 26
For complet eness, we assess t he robus t ness of our anchor
choi ce by s t udyin g t wo recent nat ural experi men t s. There have
been tw o large recent swi n gs i n t he bi lat eral dollar-euro exchange
rat e (see Onli ne Appendi x F igure A. 1). These movemen t s can be 4128
t raced back t o monet ary policy shocks i n Europe and t he United
St a t es. Firs t, on J uly 22, 2012, ECB Pres i den t Mario Dragh i made by
h i s now f amous speech i n whi ch he st a t ed t hat t he ECB s t ood gues
ready t o do "what ever it t akes" t o preserve t he euro. Followi n g his t

on
pronouncement s, spreads on sovereign bonds of peripheral euro-
16
zone government s decli ned and t he euro a pp reci a t ed by about 10% Oc
relative t o t he dollar t hrough t he end of t he year. Second, t he mi n- t
ober
u t es of t he FOMC mee tin g of J une 17-18, 2014, i ncreased market
perceptions t hat t he Federal Reserve would i n itia t e its tigh t eni n g 2019
cycle, a perception t ha t ga t hered moment um t hroughout t he res t
25. Due t o dat a li mitations, t hi s met hodology i s only appli ed t o managed

currenci es si nce 2000.
丑 oating
26. Leavi ng t hese 10 cases unclass ified (i .e., no anchor or ref erence currency)
would no t affect an y of t he article's conclusi ons.
TABLE I
CLASSIFYING REFERENCE CURRENCIES FOR 胚AGED FLOATING CURRENCIES W兀'H
SUPPLEMENTARY DATA
Downloaded
Country (refe rence
currency) Years Indi cat ors
Brazil (dollar) 2000-2002 94% of exports and 84% of i mports
2008- pr i ced i n dollars. 90% of fo reign
fr
currency publi c and publ i cly om
guarant eed (PPG) deb t in dollars.
https
Pri or anchor: dollar.
Chile (dollar) 2008- Invoi ci n g dat a n.a., bu t given large :
//academ
share of copper i n export s and t he
denomi nation of copper pri ces i n
dollars, t he li on's share of export s are
likely denom i nat ed i n dollars. Pri or i
c
.
oup
anchor: dollar.
Colombi a (dollar) 2008- g
Close t o 100% of i nvoici n and 100% of .
8m/qje/a
PPG debt i n dollars. Previous anchor:
dollar.
Iceland (dollar-euro) 200 6--2009 Very divers ified i nvoici n g be t ween
dollar, Briti sh pounds, and euro. rti
cle,abs
Cen t ral bank FX reserves very
diversified. Anchored t o dollar-euro
baske t subse quently. t
racU134/2/599/527
Sou t h Korea (dollar) 2004-2009 Previ ous and subse quent anchor:
dollar. Ot her dat a unav ai lable.
Mexico (dollar) 2009- Invoicin g dat a n.a, bu t with more t han
80% of exports and nearly half of
i m port s from t he United St a t es, t he
dollar i s certa i nly t he mai n i nvoi cing
4128
currency. Maj ority of debt i nvo i ced i n
dollars. Previ ous anchor: dollar.
Paragua y (dollar) 2011-2013 Invoici n g dat a n.a. Nearly 90% of PPG by
debt i n dollars. Previ ous and gues
subse quent anchor: dollar.

t
Russ i a (dollar-euro) 2009-2012 Previ ous anchor: dollar-euro basket on
and de j ure poli cy of mana gin g its fl oat 16
around a baske t of 55% dollar and 45% Oc
euro. Ot her dat a unava ilable. t
ober
Turkey (dollar) 2011- Diversified i nvoicin g with t he maj ority
i n dollars. PPG debt i s 60% dollar and 2019
40% euro. Previ ous and subse quen t
anchor: dollar.
Urugua y (dollar) 2009-2012 Previ ous and subse quen t anchor:
dollar. Ot her dat a unav ailable.
Sources. Gopi nath (2015), World Bank interna tional deb t statistics, national cent ral banks, and aut hors'
calculations.
of t he year. As a result, t he dollar appreci a t ed by a cumulative

30% relative t o t he euro t hrou gh March 2015.27 Currenci es we
classify with a dollar anchor or refe rence move more closely with
t he dollar i n bot h episodes. While Online Appendi x 3 provi des t he Downloaded
de t a i ls for t he full exerci se, we h ighligh t here t hat all i n all, t hese
t wo event s t udi es s t rongly corroborat e our anchor and refe rence
classifi cati ons.
fr
om
Ill. THE "BIG PICTURE" https
Thi s secti on quantifi es t o what ext ent a handful of maj or cur- :

//academ
renci es serve as anchors or reference currenci es for t he res t of t he

world. Apart from documen ti ng t he exit of old anchors, t he emer-
gence of new ones, and t he resilience of some, our s t udy a ttempts i
c
.
g
t o shed ligh t on t he fa ct ors de t ermi n i n which currenci es prev ail
oup
.
8m/qje/a
or fai l as anchors. Alt hough t he reruni nbi i s not an anchor cur-
rency i n our h i st ori cal analysi s, we nevertheless devo t e a ttenti on
t o t he possi bi lity t hat it m igh t be emergin g as a new pole of t he
i n t ernational mone t a ry order. We t hen shift our fo cus t o t he evo-
rti
cle,abs
luti on of exchange rat e arrangement s i n t he seven decades si nce
World War II. Of pa rticular i n t erest i s t he emergence of new typ es t
racU134/2/599/527
of de j ure mone t ary and exchange rat e arrangement s and t hei r
de gree of exchange rat e fl exibi lity. We ask whe t her t hese arran ge-
ment s are charact eri zed by t rends t oward great er exchange rat e
y
fl exi bility or b long cycles with no clear-cut t endency. We sup-
plement our di scussi on with an ext ensi ve measure of exchange
rat e res t r i cti ons and cont rols, which helps capt ure t he ext ent t o 4128
whi ch goverrunent s a ttempt t o ci rcumvent t he i m possi ble t r i n ity

by
(open capital marke t s, exchange rat e st abilizati on, and i ndepen-
gues
dent mone t a ry policy) and set s t he st a ge for a lat er discussi on
of how count r i es'desi re t o s t abilize t he exchange rat e may be t
on
a ffectin g safe asse t accumulation. 16
Oc
III.A. Anchor Currency t
ober
F igure II present s t he evoluti on of fo ur maj or anchor cur- 2019

renci es from 1946 through 2015. The t op panel shows t he
27. Thi s differs from t he proverbi al "ta per t an t rum" of t he previ ous year, when
t he Federal Reserve i ndi cat ed plans t o slow down and event ually reverse asse t
purchases as part of its quan tita tive easi n g poli ci es. Alt hough thi s announcemen t
di d creat e some volatility i n emergin g marke t currenci es, it had a relatively mut ed
e ffect on t he bi lat eral euro-dollar exchan ge ra t e.
Share of coun tries, 1946--2015, excludes freely如lling cases

100 Percent
90
Downloaded
80
70
60 UK.pound
fr
om
50
https
40
:
//academ
30
20
US dollar
10 i
c
.
oup
。
1946 1956 1966 1976 1986 1996 2006 .
8m/qje/a
Number of coun tr ies we ighted by thei r share i n world GDP, 1950--2015, excludes freely
f alling cases
rti
I 00 , Percent cle,abs
90
t
80 racU134/2/599/527
70
60
50
40
4128
US dollar
30
by
20
gues
10
t
on
。
1950 1960 1970 1980 1990 2000 2010 16
Oc
FIGURE II t
ober
Pos t-World War II Maj or Anchor Currenci es
2019
To p: Share of countries, 1946-2015, excludes freely falli ng cases. Bottom: Num-
her of coun tries we igh t ed by t hei r share i n world GDP, 1950- 2015, excludes freely
fal lin g cases.
Sources: The Conference Board, To tal Economy Da tabase; Int ernati onal Monet a ry
Fund, In ternational 几nancial S t a tis tics; Rei nhart and Rogoff (2004) and sources
cited t here in; and aut hors'calculati ons. Currency baske t s were allocat ed propor-
tionally t o t he anchors represen t ed i n t he baske t. The Coun try Chronologies t hat
supp lemen t t h i s a rti cle show t he evoluti on of t he anchor currency on a country-
by-coun try basi s.
(unweigh t ed) share of countries anchored t o each anchor cur-

rency.28 The bottom panel present s t he same i n forma ti on but
weigh t s the observati ons by count r i es'GDP. The French fr anc
and German DM, whi ch bot h t rans itioned t o t he euro i n J anuary Downloaded
1999, are combi ned i n t o a si n gle zone for 1946-1998. AB t he fig-

ure illus t rat es, t he dollar rem ains domi nant in t he t wen ty-firs t
cent ury and by some measures i s even more cent ral t o t he i n t er-
nati onal monet ary sys t em t oday t han i n t he heyday of t he Bre tton fr
om
Woods sys t em.29 Import ant ly, however, and as we di scuss, t he ge- https
ograph y of dollar i n fl uence has evolved consi derabl y, and re gimes
of intermedi a t e fl exi bi lity have become more prevalent. :
//academ
The Brett on Woods syst em i ns titu ti onalized t he role of t he
U. S. dollar as t he mai n anchor currency and, until t he 1970s, about
70% of global GDP was anchored t o t he dollar. The remai nder was i
c
.
oup
split roughly evenly bet ween t he British pound and t he Sovi et
.
ruble. As t he figu re illus t rat es, t he i n fl uence of t he pound fell i n 8m/qje/a
t he years a fter World War II, accent uat ed by t he United Kin gdom's
peri odic economi c cri ses. At t he end of t he Bretton Woods era, t he
DM emerged as t he domi nant European currency i n t he 1970s, rti
cle,abs
as many European countri es began t o shadow t he ac tions of t he
Bundesbank, expli citly or ot herwi se. t
racU134/2/599/527
Whi le t he U. S. dollar was t he currency of choi ce among t he
former Briti sh coloni es exitin g t he s t erlin g zone, t he loss of com-
paratively high-i ncome Europe t o t he DM led t o a shrin kin g of t he
dollar zone by 1980. Thi s dent t o t he U. S. dollar zone i s a pp aren t
i n F igure II. At t h i s time, ano t her t rend was t he falli n g share of
count r i es with a tigh t exchange rat e li nk t o t he U. S. dollar. 4128
The dollar's anchor currency s t a t us recei ved a boost i n
t he early 1990s a fter t he collapse of t he fo rmer Sovi et Uni on by
gues
28. Thi s and subse quent figures i nclude only i ndependen t (sovereign) s t a t es, t
on
which means t hat t he total number of en titi es more t han doubles over t he course
16
of t he sample, from 79 in 1946 to 188 in 2016. There are 6 te rritories fo r which
we have a full classifi cati on, bri n gi n g t he t ot al t o 194. The dat a se t also i ncludes Oc
pre-i ndependence de facto exchange rat e arran gement s so t hat it i ncludes monthly t
ober
dat a fo r 194 coun tri es from 1946 t o 2016.
29. The figure combi nes anchor and reference currenci es. A figure res tri ct ed 2019
t o anchors (i .e., excludi n g mana ged fl oati n g curren ci es) looks almos t i denti cal
and i s shown i n Onli ne App en dix F igu re A. 3. The share of world GDP anchored
t o t he dollar i s 65%, and an additional 5% of world GDP has t he dollar as a
refe rence currency. Onli ne App endix F igure A. 4 reweigh t s anchors based on t he
de gree of exchange ra t e fl exi bi lity, givi n g a h igher weigh t t o more fi xed exchan ge
arrangemen t s. Gi ven t hat t he eurozone members recei ve t he h ighes t we igh t, t he
euro bloc i ncreases i n si ze, but t he domi nance of t he dollar bloc rem ai ns.
d i smantl ed t he si zable ruble bloc. Russi a and mos t of t he for-

mer Sovi e t republi cs have si nce anchored t o t he dollar (or used
it as t hei r refe rence currency). On t he ot her hand, mos t East ern
European nati ons t hat were either a pa rt of t he Sovi et Uni on (the Downloaded
Balti cs) or sat ellites i n t he Sovi e t sphere left t he ruble t o em-

brace fi rs t t he German DM and lat er t he euro. Es t oni a, Latvi a,
Lithuani a, t he Slovak Republic, and Sloveni a are now a pa rt of t he
19-count r y eurozone. As t he chronologies document, a number of fr
om
ot hers i n t he re gion have tigh t li nks t o t he euro vi a de fact o pegs, https
crawli n g pegs, or narrow corri dors.
By t he lat e 1970s and i n t o t he 1990s, a significant proporti on :
//academ
of count r i es i n Latin Ameri ca and A伍ca (and elsewhere, like Vi et-
p
nam, i n Asi a or Turkey, i n Euro e) had freely falli n g currenci es.30
Chroni c and high i n fl a ti on, and i n numerous cases h yp eri n fl a ti on, i
c
.
oup
meant that t hese count r i es were "anchorless" with re gard t o t hei r
.
exchange rat e, whi ch s t eadi ly plummet ed i n value versus nearly 8m/qje/a
all ot her currenci es. As i n fl a tionary cri ses became much less com-
mon i n t he t wenty-fi rst cent u ry (to dat e), nearly all t he countri es
with freely falli n g currenci es i n t he lat e 1970s-1990s have rean- rti
cle,abs
chored t o t he dollar. Arguably, one can plausi bly rei n t erpre t the
h i st ory of t he freely falli n g cases and conclude t ha t t hese coun- t
racU134/2/599/527
tries mai n t a i ned a U. S. dollar anchor even duri n g t he years of
very h igh i n fl a ti on, as t hei r t rade, deb t s, and hard-currency re-
serves conti nued t o be denomi nat ed i n U. S. currency. Duri n g t hese
long and chroni c high i n fl a ti on bout s, many of t hese countri es be-
came significantly doll arized domesti cally. 31 The one place t hat
t he dollar li nk was no t a pp arent was i n t he s inkin g value of t hei r 4128
currenci es.
The French franc zone, whi ch had its larges t roo t s i n French by
Afri ca, mos t explicitly i n t he CFA currency arran gement, held gues
a s t eady share t hroughout t h i s peri od un til it was replaced by t

on
t he euro i n 1999. The DM zone, whi ch i n 1999 was consoli dat ed
16
with t he French fr anc area under t he ae gi s of t he euro, expanded Oc
t o peak a t a pproximat ely 20% of global GDP by t he st art of t he t
ober
t wen ty-firs t cent u ry. Si nce t hen, t he proporti on of world GDP an-
chored t o t he euro has decli ned. The shrinkin g euro area (as a 2019
30. As not ed i n Secti on 11.B, freely falli ng captures all t he cases where t he
12-mont h i nfl ati on rat e exceeds 40%. The i nci dence of freel y f alling over 1946-
2016 i s di scussed lat er i n t hi s section.
31. On de fact o dollari zation see, for inst ance, Calvo and Ve gh (1999), Ize and
Levy-Yeyati (2003), and Rei nh art, Rogoff, and Savast ano (2014).
share of world GDP) has bot h ext ernal causes—the growt h of

Chi na and ot her emergin g marke t economi es (an i ssue we t ake
p
u i n Section IV)-and i n t ernal ones, such as t he global fi nanci al
cri si s, whi ch a ffect ed eurozone members es peci ally severely (see Downloaded
Rei nhart and Rogoff 2014).
fr
Ill. B. Dri vers of Anchor Currenc i es om
https
The role of a domi nant i n t ernati onal currency has evolved
over time along with the comi n g and goi n g of great powers and t he :
//academ
evoluti on of i n t ernati onal fi nance. In t he fifth cent u ry BCE, when

At heni an "silver" owls began t o ci rculat e wi dely out si de of Greece,
t he a ppeal of widely known and reco gnized s t andardi zed coi nage i
c
.
oup
was t hat t raders could expect a relatively uniform si lver cont en t.
.
For over 300 years u p until t he mid-ni ne t eent h cent u ry, Spani sh 8m/qje/a
pieces of eigh t were wi dely used i n i n t ernational commerce. In-

deed, Spani sh silver coi ns were legal t ender i n t he United S t a t es
until near t he ti me of t he Ci vi l War. Spa i n's currency domi nance rti
cle,abs
pa rtly owed t o t he quality of t he coi nage but also t o t he fact t hat
her coloni es, i ncluding Mexi co, Bolivia, and Peru, account ed fo r t
racU134/2/599/527
fo ur-fifths of global silver production bet ween 1493 and 1850 (see
Chalmers 1893; P i a tt 1904). But t he i n t ernational role of Spa i n's
currency was also cat alyzed b y t he country's role as t he domi-
nant global t radi n g and mi lita ry power i n t he sixteent h cent u ry.
Once ent renched, t he cent rality of t he Spa nish si lver dollar (and
lat er Mexican silver dollar) persi s t ed long a fter Spai n had ot her- 4128
wi se faded t o t he periphery of Europe a fter t he Napoleoni c Wars.
Spani sh coi nage di d have competition a t ti mes. Durin g part s of by
t he sevent eent h and eigh t eent h cent uri es, t he Dut ch guilder ci r- gues
culat ed far out si de t he Net herlands, refl ecti n g t he country's vast t

on
i n fluence i n t rade and fi nance over t he peri od (D enzel 2010). Of
16
course, as Rei nhart and Rogoff (2009) document, f ew count r i es Oc
could resi st gradually dilu tin g t he silver cont ent of thei r coi na ge t
ober
over ti me, although t he rat e of debasement was generally modes t
compared t o t he great i n fl a ti ons of t he fi a t money era. 2019
y,
Duri n g t he nine t eent h cent ur t he United Kin gdom emerged
as t he world's domi nan t t rade, m ilitary, and bankin g superpower.
The gold-backed Briti sh pound i n t urn became t he i n t ernati onal
currency, a position it ret a i ned long a fter t he United St a t es had
far surp assed t he United Ki n gdom i n global t rade and manufa c-
t uri n g production. Even a fter t he devas t a tion of World War I, t he
pound managed t o re t a i n nearly coequal s t a t us with t he dollar. 32

Only a fter World War II di d t he dollar emerge as t he s i n gle i n-
t ernational currency; i ndeed, European currenci es were illiqu i d
ami d tigh t post war fi nanci al cont rols. The dollar, of course, was Downloaded
placed a t t he offi ci al cent er of t he Bretton Woods syst em of fixed

exchange rat es, whi ch collapsed i n t he early 1970s.
It i s very common i n t he literat ure t o mark a currency's dom-
i nance b y its share i n foreign cent ral bank reserves. Foreign ex- fr
om
change reserves are a relatively modern phenomenon datin g back https
t o t he lat e n i ne t eent h-cent ury gold st andard era, when cent ral
banks began holdi n g a modes t share of reserves i n gold-backed :
//academ
currenci es, mai nly t he pound s t erlin g. The modern const ruct of
t he anchor or reference currency, however, i s much broader and
also re fl ect s a currency's role in t rade i nvoicin g, global bond i s- i
c
.
oup
suance, and exchange rat e management. Our a rti cle parti cularly
.
emphasi zes measures of the latter, because t he currency countri es 8m/qje/a
choose as an anchor (or ref erence) for mone t ary s t abilization i s

li kely i ndi cative of t he overall ext ent of exposure t o t he exchange
movement s a ga i ns t vari ous anchors. rti
cle,abs
What i s t he gravit a ti onal pull t oward a (si n gle) anchor cur-
rency? Why do so man y cent ral banks choose t o place a significant t
racU134/2/599/527
weigh t on dollar exchange rat e s t ability, fa r out of proportion t o
t he si ze of t he United St a t es i n global t rade or financi al market s?
The out si ze role of t he dollar re fl ect s a number of mu t ually rei n-
forci n g fa ct ors, mos tly (but no t entirely) deri vi n g from t he fa ct t hat
t he global currency i s a nat ural monopoly i n bot h goods and fl.n an-
ci al market s. Economi s t s have long no t ed t he convenience fact or 4128
firms and consumers derive when t he bulk of t rade i s i nvoi ced i n
a common currency (e. g., Swoboda 1969). Recent t rends i n global by
gues
t rade t oward i ncreasi n gl y large multicountry supply chai ns, mos t
not ably within 知ia, have rei n fo rced t he convenience advan- t
on
t a ge of dollar prici n g. Bacchetta and van Wi ncoop (2005) and 16
Goldberg and Tille (2008) emphasi ze t he i m portance of s t ra t egic Oc
complement ariti es and pri ci n g t o marke t i n t he choi ce of currency t
ober
32. Ahamed (2009) emphas i zes how t he United Kingdom's domi nance i n bank- 2019
i ng and t rade fi nance continued t o reinforce t he cent rality of t he pound up un til

World War I long afte r t he United St at es had vast ly s叩assed t he United Ki ng-
dom i n economi c si ze, with U. S. bankers remaining mainly domesti cally focused
un ti l after World War I, when UK banks'capacity t o rai se capital had been sharply
dimini shed.
i n h ighly competitive marke t s. Goldberg and Tille :find t hat:firms

are more li kely t o price i n t he domi nant currency t he higher t he
demand elasti city for t hei r produc t s.
As He, Kri shnamurth y, and Milbradt (2016) emphasi ze, t here Downloaded
i s also a nat ural t endency i n bond marke t s t o price i n t he domi nant

currency, t hanks t o t he liqu i dity advant a ges best owed by market
si ze. Among ot her advant a ges, i ncreased liqu i dity reduces rollover
ri sk, t hereby contributin g t o maki n g domi nan t currency bonds a fr
om
s afer asset. With a significant share of t hei r countri es' t rade and https
:finance pri ced i n dollars, cent ral banks have an i ncentive t o try
t o st abi li ze dollar exchange rat es, pa rticularly t o t he ext ent t ha t :
//academ
goods pri ces are sti cky and :financi al r i sks cannot be perfect ly
hed ged. (For example, if a country's corp orat es and :financi al :firms
are heavy ne t borrowers i n dollars, a depreci a ti on of t he domes ti c i
c
.
oup
currency rai ses deb t burdens t o t he extent t hat t he real s i de of
.
t he economy i s not dollari zed.) 8m/qje/a
Hassan, Mertens, and Zhang (2016) offer ano t her explana-

tion fo r why cent ral banks m igh t wan t t o commit t o s t abilizi n g
dollar exchange rat es, above and beyond goods prici n g and liqu i d- rti
cle,abs
ity mi smat ch. By shadowi n g a large count r y's exchange rat e, a
small count r y can effectively make domes tic currency bonds less t
racU134/2/599/527
r i sky i n real t erms fo r global i nves t ors, allowi n g t he small country
t o enj oy some of t he "saf e asse t" advant a ges t hat nat urally accrue
t o a large currency (see Hassan 2013).
Gopinat h and St ei n (2018) develop a comprehensi ve model
t ha t emphasi zes t he self-rei n forci n g advant ages of t he domi nant
currency i n goods and asse t prici n g. Thei r model demons t rat es 4128
how h igh demand fo r "safe" dollar-denomi nat ed U. S. Treasury
bonds leads t o a reduced i n t erest rat e t hat i nduces non-U. S. by
corp orat es t o i ssue dollar debt as well. As :firms i ssue dollar- gues
denomi nat ed debt, t hey have more i ncen tive t o hedge by pr i ci n g t

on
export s i n dollars. The more t hei r export goods are pr i ced i n dol-
16
lars, i n t urn, t he lower t he premi um t hey have t o pa y t o i ssue Oc
dollar debt. t
ober
It i s i mport ant t o no t e t hat t he modern literat ure cited above
fe a t ures t he nat ural monopoly advan t a ges of bei n g a domi nant 2019
currency but largely abs t rac t s fr om political economy consi dera-

tions. Rogoff (2001) argues t hat a world with one domi nan t cur-
rency i s less robus t t o m i sbehavi or by t he cente r count r y and
pot entially less st able (a t heme we re t urn t o i n our di scussi on
of s afe asse t s and t he Triffi n di lemma). Relat edly, t he st alli n g
of t he euro as an anchor currency (as we document) probably
p
has much t o do with olitical i ns t abi lity with i n t he euro syst em
and li n gerin g uncerta i n ty over t he fut ure of t he si n gle currency.
The nat ural advant a ges of t he dollar m igh t seem much less so
i n a world where national political shifts di d no t continuously Downloaded
r ai se ques tions about t he long-term sust a i nabi lity of alt ernatives.

Political fa ct ors may be a t least as i m port ant as t he nat ural
monopoly advan t a ges s t ressed i n t he literat ure. Indeed, one can-
not rule out t hat ri s i n g s t ability i n t he eurozone (should t hat oc- fr
om
cur) would cause a broader range of i n t erli nked count r i es t o move https
from dollar t o euro currency anchori n g, or t hat someday China
m igh t be able t o press smaller countries i n t o renmi nbi anchor- :
//academ
i n g much fa s t er t han t hey m igh t ot herwi se choose, particularly
i n Asi a. (We di scuss t he pot ential ri se of renmi nbi anchorin g i n
Secti on III. C.) i
c
.
oup
The multiple roles of t he anchor currency are eviden t i n
.
Table II. It s t udi es fo ur maj or reserve currenci es (dollar, euro, 8m/qje/a
pound, and yen) and report s t he share of count r i es anchored t o

each and a number of ot her fact ors reflectin g t hei r cent rality i n t he
i n t ernational monet a ry sys t em. These fa ct ors i nclude t he share rti
cle,abs
of world reserves held i n t h i s currency, t he share of ext ernal deb t
t ha t i s denomi na t ed i n t he anchor currency, and an i ndex t hat t
racU134/2/599/527
summari zes t he ext ent t o whi ch world t rade i s denomi nat ed i n
t he anchor currency.33
The pict ure emergin g from Table II i s fai rly consi s t ent across
i ndi cat ors and confirms our assessmen t t hat t he U.S. dollar st ands
out as t he domi nant anchor. Based on t he classificati on approach
outlined i n Secti on II, t he dollar serves as t he anchor or re ference 4128
currency for 60% of t he countries i n our s t udy i n 2015. About t wo-
thi rds of t he world's foreign exchange reserves are held i n U.S. dol- by
lars, and a comparable share of developin g and emergin g market gues
economi es'ext ernal deb t i s denomi nat ed i n greenbacks (Faudot t

on
and Ponsot 2016).34 Bot h i n magnitude and relative i mport ance,
16
t hese numbers align with our own estimat es on exchange rat e Oc
arrangement s. F i nally, t he United St a t es scores 69% on t he t rade t
ober
33. The t rade-i nvoi ci n g i ndex i s based on t rade-i nvoicin g da t a from Gopina t h 2019
(2015) and i s det a i led i n Onli ne App endix 4. It averages t he percent of countries
with any t rade i nvo i ced in a given anchor currency with t he share of all t rade
i nvoi ced in t hat currency.
34. Currency denomi nati on of reserves i s available i n t he a ggrega t e bu t not
on a coun try-by-country basi s.
TABLE II
MARKERS OF AN ANCHOR CURRENCY
Percen t
Downloaded
Panel A: Anchor measure or criteri a : U. S. dollar
Share of countries with a U. S. dollar anchor i n t he i r exchan ge 59
rat e arrangemen t s
Share of world's reserves (excludi ng gold) i n U. S. dollars 65
fr
Share of developi n g country external deb t denom ina t ed i n U. S. 64 om
dollars. (Thi s does not i nclude debt owed t o Chi na
https
denomina te d i n U. S. dollars)
Trade i nvoici n g "i nde x'' 69 :
//academ
Memorandum item:
Share of t he U. S. i n world GDP 18
Panel B: Anchor measure or criteri a : euro i
c
Share of countries with a euro anchor in t hei r exchan ge rat e 29 .
oup
arrangemen t s
.
8m/qje/a
Share of world's reserves (excludi ng gold) i n euros 20
Share of develo pin g country external deb t denomina t ed i n 13
euros
Trade i nvoici n g "index" 56 rti
Memorandum item: cle,abs

Share of t he eurozone i n world GDP 11.8
Share of France and Germany i n world GDP 5.6 t
racU134/2/599/527
Panel C: Anchor measure or criteri a: British pound
Share of countries with a pound anchor in t hei r exchange rat e Nil
arrangemen t s
Share of world's reserves (excludi n g gold) i n pounds 4
Share of developi n g country external deb t denom ina t ed i n <1
pounds
Trade i nvoi ci n g "i ndex" 8.5 4128
Memorandum item:
Share of UK i n world GDP 2.7 by
gues
Panel D: Anchor measure or criteri a: J a panese yen Nil6
Share of countries with a yen anchor i n t he i r exchange rat e t
arrangemen t s on
4695
Share of world's reserves (excludi n g gold) i n yen 16
Share of develo pin g count r y exte rnal debt denom ina t ed i n yen Oc
Trade i nvoi ci n g "i ndex" t
ober
Memorandum item:
Share of J apan i n world GDP 2019
Notes. Figures for 2015 unless otherwise no ted.

Sources. The Conference Board, Total Economy Database; Gopina th (2015); Inte rna tional Monetary Fund,
Interna tional 凡 nanc ial S t a tis ti cs; Reinha rt and Ro goff (2004) and sources cite d t herei n; World Bank; and
au t hors'calculati ons. The Country Chronologies t hat supplement t h i s article show t he evoluti on of the anchor
currency on a country-by-co untry bas i s. GDP i n milli ons of 1990 US$ (converte d a t Geary Khami s PPPs).
i nvoi ci n g i ndex, a score t hat exceeds t ha t of any ot her anchor

currency.
The only ot her maj or anchor currency, by our classificati on,
i s t he euro, t o whi ch almos t 30% of countries are anchored. Thi s Downloaded
figu re somewhat overst at es t he euro's global reach, as t he euro's

sphere of i n fl uence appears t o be con fi ned t o Europe (i ncludi n g
emergin g Europe). The fact ors show a si milarly cons i s t ent pic-
t ure on t he role of t he euro as a di s t ant second. While t he t rade- fr
om
i nvoi ci n g i ndi cat or has a fai rly h igh readi n g, t he ot her i ndi cat ors https
on reserves and ext ernal deb t are consi derably lower t han t hei r
readi n gs for t he U. S. dollar. In Asi a, La tin Ameri ca, t he Mi ddle :
//academ
East, and much of Afri ca (the CFA zone no twiths t andi n g), dollar
reserves domi nat e.
No country pegs t o or shadows the yen or pound a t present. i
c
.
oup
Indeed, a part from its coloni es prior t o World War II or its occu-
.
pied t erritori es duri n g t hat war, J a pan's currency has served as 8m/qje/a
an anchor only for t he domes ti c economy. Even for J a panese t rade

i nvoi ci n g it compet es with t he dollar. The t rade-i nvoi ci n g i ndi ca-
t or gives some i nsigh t why the pound and yen have very limited rti
cle,abs
st a t us as world anchor currenci es duri n g t h i s peri od. For each of
t he fact ors, t he score i s less t han one-sevent h of t he dollar's com- t
racU134/2/599/527
bi ned score. The lat e Ronald McKinnon, i n several of h i s papers on
what he called East Asi a's dollar s t andard, emphasi zed t h i s poi n t
(see. e.g., McKi nnon and Schnabl 2004). As Gopinat h's (2015) dat a
h ighligh t, about 50% of J apan's exports and over 70% of its i m-
port s are denomi nat ed i n U. S. dollars. Furthermore, J a pan's li nk
t o t he U. S. dollar last ed longer t han Europe's and well pas t t he 4128
breakdown of t he Bretton Woods arrangement s, as J a pan m ain-
tained a narrow de fact o band un til 1977. (See t he compani on by
count r y chronologies t o t h i s a rti cle.) gues
Invoi ci n g no t withs t andi n g, its lack of i n t ernational resonance t

on
remai ns puzzli n g. In its heyday, prior t o t he banki n g cri si s of t he
16
early 1990s, J a pan account ed fo r nearly 10% of world GDP; it had
low levels of public debt; it had h igher ra tin gs t han t he United
Oc
t
ober
St a t es accordi n g t o i ns tit u tional i nves t ors, and, i n t he 1980s, it
was the country t o emulat e. Perhaps re gulat ory measures or t he 2019
st ruc t ure of domes ti c bankin g, post al savi n g, and pensi on fu nds

never gave t he res t of t he world an opportunity t o hold yen asset s
(specifically yen government bonds). It rem ains a case fo r further
st udy.
III. C. The Renm i nb i as a Fu t ure Anchor?

In t he fut ure, t he role of t he Chinese renmi nbi i n i n t ema-
ti onal fin ance will be a cent ral questi on.35 The renmi nbi i s now
Downloaded
i ncluded i n t he IMF's Speci al Drawi n g Righ t s Basket, and Chi-
nese policy makers a ppear t o be i n t en t on i n t ernati onali zi n g t he
renmi nbi over t he long run. Are t here any i ndi cati ons t hat a
y
lat en t renmi nbi bloc i s alread emergin g? The difficulty i n as-
fr
sessi n g whe t her t he renmi nbi i s a lat ent anchor should be i m- om
medi a t ely a pp arent. The renmi nbi has been s t rongly anchored https
t o t he dollar, so t hat shadowi n g t he dollar and t he renmi nbi
:
are observati onally e qu i valent. In 2005, t he PBC sligh t ly loos- //academ
ened its peg t o t he dollar; si nce 2015 it has allowed t he ren-

mi nbi t o fl oat sligh t ly more freely. We no t e, however, t ha t t he
c
renmi nbi -dollar cross-rat e remai ns well with i n a 2% band, mak-
i
.
oup
i n g it nearly i mpossi ble t o d i s ti n guish anchorin g t o t he renmi nb i .
8m/qje/a
from anchorin g t o t he dollar. 36 On ot her d i mensi ons, t here are
s till no s igns t hat t he renmi nbi has emerged as an a ltema-
tive anchor. Only 30% of Chinese t rade i s denomi nat ed i n ren- rti
m i nbi, and it has no t served as a vehi cle currency for any ot her cle,abs
country. Only a small share of i n t ernati onal reserves i s denom-

i nat ed i n renmi nbi, and t o our knowledge, virtually no ext ernal t
racU134/2/599/527
deb t s (even t hose owed t o Chi na) are denomi nat ed i n China's
currency.
It i s t oo early, however, t o writ e off t he possi bi lity of t he ren-
m i nbi as a la t ent anchor. The experi ence of t he German DM under
Bretton Woods i s a case i n poi n t. The DM was pegged t o t he dollar
as part of t he rules of t he Bretton Woods game, so t hat anchori n g 4128
t o t he dollar and t he DM was almos t observationally e qu i valen t.

by
There were, however, a number of DM revaluations i n t he lat e gues
Bretton Woods peri od, and t hese could have provi ded h i n t s t hat
a pro t o-European Exchange Rat e Mechanism (EERM) was i n t he t
on
makin g. The t op panel of Online Appendix F igure A. 5 shows t he 16
las t of t hese revaluati ons, leadin g t o a nearly 10% a pp reci a ti on Oc
t
ober
35. Prasad (2016) discusses China's ambitions and poli ci es t o make t he ren-
2019
mi nbi an i nt ernati onal currency over t he lon g run.
36. Applying our anchor classificati on al gorithm over t he bri ef peri od si nce
2016 det ect s t wo candi dat e renminbi anchors: t he Malaysi an ringgit and Thai
baht. Thi s may be spurious and result from t hese currenci es havi ng some weight s
i n t he PBC's offici al baske t (4.6% and 3.3%, respectivel y), or because t hese Sout h-
eas t Asi an cent ral banks are putti ng larger euro weight s i n t hei r i mpli cit basket s,
rat her t han a renmi nbi anchor.
of t he DM relative t o t he dollar in Oct ober 1969. The figu re also

present s t he French fr anc-dollar and Dut ch gui lder-dollar cross-
rat es, showin g no sign t hat t hese currenci es were anchored t o t he
DM as lat e as 1969. 37 The lower panel of t he figu re shows t hat with Downloaded
t he end of Bretton Woods—j us t mont hs lat er—the franc, guilder,

and DM were h ighly correlat ed. Nearly a decade be fore t he DM
anchor was formalized as pa rt of t he EERM, t hese currenci es
were already movi n g i n t andem with the DM. In summary, a DM fr
om
anchor emerged rapidly followi n g t he end of Bretton Woods, but https
t here were no signs of t h i s bloc only mont hs before.
In t he i mmedi a t e fut ure, t he PBC a ppears i n t ent on mai n- :
//academ
taini n g a relatively managed exchange rat e anchored t o t he dol-
lar or a basket, i n t ervenes daily i n foreign exchange marke t s, and
does no t allow fu ll convertibility of the renmi nbi. It i s unlikely t o i
c
.
oup
compe t e as a maj or anchor currency with t hese practi ces i n place.
.
The more i mmedi a t e i m pli cati on of PBC poli cy on anchor curren- 8m/qje/a
ci es may be its recent announcement i n December 2015 t hat it

will be anchori n g its currency t o a basket. Thi s arti cle's sample
ends i n 2016 and a full assessment of t he PBC's de j ure basket rti
cle,abs
goes beyond t he scope of t h i s work. Applying our anchor classifica-
tion algorithm t o the bri e f peri od si nce 2016 rai ses t he possi bi lity t
racU134/2/599/527
t hat t he renmi nbi i s now anchored t o a dollar-euro basket (th i s
50-50 basket performs sligh tly better t han t he de j ure baske t).
We no t e t hat th i s has been a peri od of st rong dollar a pp reci a ti on
q
and a longer wi ndow i s re u i red t o fully classify t he PBC's new
exchange rat e practi ces. Gi ven t he si ze of t he Chi nese economy,
reclassifyin g Chi na t o a basket will have some effect on t he share 4128
of world GDP anchored t o t he dollar and euro (with t he dollar bloc
declin i n g from 70% t o 61 % and t he euro bloc i ncreasi n g from 15% by
t o 23%) and even more so if ot her maj or emergin g marke t s follow gues
suit. We ret urn t o t he possi bi lity of a lat ent renmi nbi anchor i n t
on
t he conclusi ons.
16
Oc
III. D. Exchange Ra te Arrangemen ts t
ober
Havi n g described t he t rends i n anchor currenci es, we t urn t o
t he global evolution of exchange arrangement s. F igure III shows 2019
t he evolution of exchange rat e arran gement s over 1946-2016 i n

t hree panels. Panel A t races t he evoluti on of t he least fl exible
arran gement s (coarse classificati ons 1 and 2); Panel B presen t s
37. The Belgian franc was t he si ngle European currency t hat shadowed t he
German revaluati on of 1969.
(A) Groups I and 2: Less flexibility, primarily nominal exchange rate anchors
IOO l pereent Group 2. Graduahst adJUS tment
＂午＾”、＾~``'l ;mn 九^”“、“
90
80
Downloaded
70
60
50
40
fr
30 om
Group I: Least fl e xi ble
20 (from no separate legal tender to de facto pegs) https
10
:
//academ
。
1940 1950 1960 1970 1980 1990 2000 2010
(B) Groups 3 and 4: More fl釭ib/ea汀angemen ts

i
c
100 Percent .
oup
90 .
8m/qje/a
80
70
60
rti
50 cle,abs
40 Grou]) 4: Freely floating

Group 3: Broad bands and
30 managed fl oati ng
t
racU134/2/599/527
20
IO
。
1940 1950 1960 1970 1980 1990 2000 2010
(C) Groups 5 and 6: Flexibly unstable: Anchorless

100 , Percent
4128
90
80 by
70 Group 5: Freely fa lling, gues
i nfl ati on > 40%
60 Group 6: Multiple, dual, or or currency crash
parallel markets with lim ited or t
50 no data on the structure o f on
exchange rates 16
40
30 Oc
t
20 ober
10
2019
。
1940 1950 1960 1970 1980 1990 2000 2010
FIGURE III
De Fact o Exchan ge Ra t e Arran gemen t s, Coarse Classifi cati on, 1946-2016: Share
of (Independen t) Coun tries i n Each Group
t he more fl exi ble arran gement s (coarse classifications 3 and 4);

and Panel C t races out t he i nci dence of t he d ys f unc ti onal freely
fallin g cat egory and t hose few cases where t here are dual or
multiple exchange rat e practi ces or an active parallel marke t and Downloaded
we do not have ti me-seri es dat a on t he parallel market exchange

rat e. To offer a clearer pict ure of t he i nci dence of re gimes across
countri es and avoi d presentin g a pict ure dominat ed by a handf ul
of large economi es, we fi rs t report t he unweigh t ed t ally fo r each fr
om
regime. https
The mos t s t r i k i n g fe a t ure of t he fi rs t panel i s t hat combi n i n g
t he t wo least fl exi ble arran gement s (coarse classificati ons 1 and 2), :
//academ
t he share of count r i es livi n g with li m ited exchan ge rat e fl exibility
i s about t he same t oday as a t t he out set of t he sample under
Bretton Woods.38 Admittedly, t h i s a ggrega t e masks a significant i
c
.
oup
m igra tion from t he expli cit de j ure pegs of t he Brett on Woods era t o
g
t he s till li mited fl exibi lity arran ement s (coarse grid 2) t hat have .
8m/qje/a
more "escape valves".39 It i s evi dent i n F igure III t hat crawlin g

pegs and narrow bands were virtually nonexiste n t un til well i n t o
t he 1950s, only t o ga i n i n popularity post -1980s. rti
cle,abs
The i nci dence of managed and free fl oat s (F igure III, Panel
B) rei n forces t he fi ndi n g t hat fl exible arran gement s are no t as t
racU134/2/599/527
common s i nce t he breakdown of Bretton Woods as one m igh t have
t hou gh t . Freely fl oati n g exchange rat es are still largely confined
t o a handful of economies. True, if i ns t ead of focusi n g on t he share
of count r i es i n each cat egory, we weigh t t he a ggre ga ti on by t he
country shares i n world GDP, as i n F igure IV, t hen t he share of
fl oat ers nearly doubles t o somewhere bet ween 30% and 40%. Si nce 4128
t he United St a t es and J a pan fl oat freely, t h i s already accoun t s fo r
23% of world GDP. Thus, t o develop a sense of count r y practi ces by
around t he world, t he unweigh t ed share of count r i es of F igure III gues
i s more suited t o t he t ask. t

on
F igure V uses our fi ne exchange rat e classificati on index t o
16
weigh countri es by t hei r de gree of fl exibility (so a free fl oat get s a Oc
t
ober
38. The classifi cati on regime st udi ed by Klei n and Shambaugh (2010) i s
broadly si mi lar i n spirit t o ours and (we beli eve) would also show a si mi lar recen t 2019
ri se i n less fl exible exchange ra t e re gimes. Ano t her wi dely used syst em, Levy-
Yeyati and St urzenegger (2005), gives this resul t t o some ext ent by cons t ructi on,
si nce it i ncludes reserve accumulati on (where available) i n its algorithm for de-
t ecting exchan ge rat e infl exi bi lity.
39. In addition t o2% bands, t hi s cat egory i ncludes de j ure and de fact ocrawling
pegs, as des cri bed i n not e 13. These allow fo r more fl exi bi lity t han a hard de j ure
peg.
100
Freely Falling
90 、
80 Freely Floating
Downloaded
70
60
50 fr
om
40
https
30
:
//academ
20
10
。
i
c
.
oup
1950 1960 1970 1980 1990 2000 2010
.
8m/qje/a
FIGURE IV
De Fact o Exchan ge Ra t e Arran gemen t s, Coarse Classifi cati on, 1946-2016: Share
of World GDP i n Each Group
rti
cle,abs
l 098765432
Average Fine Classification
t
racU134/2/599/527
4128
Excluding Freely by
Falling gues
t
on
16
。 Oc
1940 1950 1960 1970 1980 1990 2000 2010 t
ober
FIGUREV 2019
Average 氏ne Exchange Rat e A盯angement Classifi cati on: Weigh t ed by

(Independent) Coun tri es' Fi ne Classifica ti ons 1-13
Sources: Int ernati onal Mone tary Fund, In terna ti onal F i nanc i al S ta ti s tics and
Exchange Arrangemen ts and Exchange Res t r i ctions; Rei nhart and Rogoff (2004)
and sources cited t here i n; numerous detailed coun try sources li s t ed i n t he Onli ne
Appendi x; and au t hors'calculati ons.
weigh t of 13, a managed float a weigh t of 12, and a de j ure hard

peg a weigh t of 2). Thi s produces an a ggre ga t e measure of t he flex-
i bi lity of t he global exchange rat e sys t em, whi ch a ga i n shows t hat
t he amount of exchange rat e flexi bility i n t he s ys t em has decli ned Downloaded
subst an ti ally i n t he pas t t wo decades. Thi s figu re shows t hat t he

t endency fo r some currenci es t o move t o more flexible exchange
rat e arrangement s has been fully offset by ot hers movi n g t o less
flexible ones.40 fr
om
F igure III, Panel C highligh t s t hat freely falli n g went i n t o a https
hia t us early i n t he t wenty-first cent u ry. The wave of h yperinfla-
tions t ha t s pread across former Sovi et republi cs came t o an end. :
//academ
The resoluti on of t he debt cri si s of t he 1980s i n t he m i d-1990s
reopened i n t ernati onal capital market s fo r many large emergin g
market s (Brazil, Mexi co, and Poland, among others), which meant i
c
.
oup
t hat t hese countries t hat had reli ed heavi ly on i nfla ti on ary finance
.
had ot her opti ons. The spread of i nfla ti on t argetin g t o emergin g 8m/qje/a
market s t ha t began i n t he lat e 1990s (Online Appendi x Table A.4)

has also contri but ed t o t he lower global i nci dence of i nfla ti on-
ary cri ses. Some resur gence of high i nfla ti on should no t be ruled rti
cle,abs
out; now i n t he third year of a sharp decli ne i n oi l and commod-
ity pr i ces, losses i n revenues, deplet ed foreign exchange reserves, t
racU134/2/599/527
and markedly slowi n g economi c ac tivity may d rive some count r i es
back t o i nfla ti onary fi nance. The most ext reme case i s Venezuela
(where estimat ed i nfla ti on exceeded 1,000% i n 2017 and ent ered
severe h yp eri nfla ti on t erritory i n 2018) but a number of Afri can
countri es are also experi enci n g i nfla ti on deep i n t o double digits,
i ncludi n g the Democratic Republi c of t he Congo, Sout h Sudan, and 4128
An gola.
g
As no t ed earlier, our classificati on al orithm t akes i n t o ac- by
count parallel exchange rat e marke t s, whi ch have a t times been gues
qu ite i m port ant. In t he early post -World War II years, t he maj or- t
on
ity of count r i es pa rticip a t ed i n t he Bretton Woods sys t em, peggin g
16
t hei r currenci es t o t he U. S. dollar, whi ch itself was convertible t o Oc
t
ober
40. Of course it i s possi ble t ha t some count ri es may have relatively st able ex-
change rat es for ext ended periods si mply because t hey face rela tively small global 2019
and domes tic macroeconomi c shocks. Al t hough we do no t have space t o t ackle t he
i ssue here, it has been addressed i n a number of papers i n t he classificati on liter-
at ure, i ncludi ng Calvo and Rei nhart (2002) and Rei nh art and Ro goff (2004). The
general fi ndi ng i s t ha t mos t countri es t hat st abi li ze t hei r exchange rat es do so
despite faci ng consi derable volati lity i n external conditions (especi ally commodity
export ers) t ha t would normally i nduce large adj us t ment s i n a fl exible exchange
rat e envi ronment.
gold a t a fix ed rat e. But large t ract s of Europe are classified as

havi n g more fl exi ble managed arran gement s over t h i s peri od. The
reason fo r this fo llows di rectly from t he fi rs t ques ti on we pose i n
our classificati on al gorithm, d i scussed i n Section II: i s t he ex- Downloaded
change rat e u nitary? In nearly all of post war Europe t hrough t he

m i d-1950s, t he answer t o t hat ques ti on was a resoundi n g no. Al-
g
t hou h t here was an offici al parity re gist ered with t he IMF, i n
practice t h i s was an era of comprehens i ve and wi despread fo reign fr
om
exchange and capital accoun t res t r i ctions of multiple exchange https
rat e practices, as di scussed a t length i n De Vri es (1969, 1987). A
wi despread dollar short a ge a t t he ti me (see Rei nhart 2016) drove :
//academ
parallel marke t premi a sky h igh (often i n t o triple digits). The gy-
rati on i n t he parallel market creat ed what Rei nhart and Rogoff
(2004) called backdoor fl oatin g. i
c
.
oup
On t he ot her si de of t he Iron Curt a i n, many of t he remai n-
.
i n g count r i es were i n t he Sovie t bloc and had pegs t o t he ruble. If 8m/qje/a
Wes t ern Europe's exchange arrangement s a t t hat ti me were deci d-

edly opa que, t he arrangement s of t he Eas t ern bloc were outrigh t
i nscrut able. Multiple exchange rat e prac tices were t he norm, and rti
cle,abs
t he Sovie t Uni on and Yugoslavia could, a t any poi n t i n ti me, li st
a dozen admi n i s t ered exchange rat es. Continued scarcity meant t
racU134/2/599/527
t ha t black currency marke t s were active despite repressi on. Un-
like Wes t ern European countri es, for whi ch we have t he parallel
market exchange rat e dat a , we do no t have as complet e a dat aset
i n t he Sovi et bloc. Hence, we leave t hese cases under t he label
"p arallel marke t s—no dat a".
Las t, si nce t he eurozone compr i ses more t han 15% of world 4128
GDP, any conclusi on about the evolution of global exchange rat e
arran gement s and t hei r de gree of fl exi bility i n recent decades by
depends i m port ant ly on how t he exchange rat e prac ti ces of eu- gues
rozone members are t reat ed. We di scuss t he classificati on of t he t

on
eurozone i n Onli ne App endi x 5. Our m ain rati onale for classify-
16
i n g its members i n t he least fl exi ble exchange rat e cat egory i s Oc
t hat our analysi s i s a t t he country level and eurozone member t
ober
countri es do no t have a separat e legal t ender. We also believe t hat
thi s classificati on i s apt for many macroeconomi c ques ti ons (e. g., 2019
fi scal-monet ary i n t eractions, deb t cri ses). Obvi ously t he euro itself
i s a freely fl oati n g currency and i s i n fa ct a maj or anchor currency,
as our previ ous analysi s sugges t s. For comple t eness, Online Ap-
pendix F igure A. 8 repeat s F igure III, while replaci n g eurozone
members with t he eurozone as a whole, classified as freely fl oat-
i n g. The general pa tterns remai n i n t act.
III. E. Is Infla ti on Targeti ng a New Anchor?

A maj or development i n mone t ary management over t he pas t
several decades has been t he proliferati on of i n fl a ti on t argetin g
(IT) re gimes. Thi s i s not explicitly i ncorporat ed i n earlier exchange Downloaded
rat e re gime classificati on exerci ses, and we explore t he i dea here.

To i n t egra t e IT fr ameworks i n t o our classificati on scheme, we be-
gin by t a kin g s t ock of t he global emergence ofIT and t he countries
fr
t hat adopted t hese poli ci es. IT re gimes are far fr om homogeneous, om
with differences across re gions, i ncome levels, and exchange rat e https
polici es. The proliferation of IT as a de j ure mone t ary re gime has
:
been a development of t he pas t t wo t o t hree decades, with a more //academ
recent h i st ory i n emergin g market s. Si nce New Zealand adopted

an i n fl a ti on t arget i n 1989, close t o 30 countri es have fo llowed suit.
c
Onli ne Appendix Table A.4 li st s t he count r i es that have adopted
i
.
oup
an IT policy fr amework, t he dat es of its i nception, and t he de fact o .
8m/qje/a
exchange rat e re gime classificati on on t he basi s of exchange rat e
behavi or.
As t he t able h ighligh t s, t here i s consi derable vari a tion i n de rti
fact o exchange rat e practices with a de j ure IT poli cy framework. cle,abs
Among t h i s group (as with non-IT cases), exchange rat e prac-

tices ran ge from t he freely fl oati n g currenci es of Aus t ralia and t
racU134/2/599/527
t he United Ki n gdom t o Romani a's de fact o peg t o t he euro si nce
2012. The more fl exible arran gement s (cat egori es 3 and 4 i n t he
coarse-gri d classificati on) i nclude freely fl oati n g, managed fl oat-
i n g, and movi n g bands t hat are narrower t han or equal to 士 2%_41
Sligh tly less t han t wo-t h i rds of t he IT group (1 7 of 27) falls i n t o
this basket. De fact o pegs, crawlin g pegs, and narrow crawlin g 4128
bands (cat egori es 1 and 2 i n t he coarse-grid classificati on) make

by
u p t he remai n i n g 10 IT countri es. More t han half of t he F ix-IT gues
group i s from emergin g Europe.
These i nsigh t s sugges t t hat IT i s t oo vague and encompass- t
on
i n g t o constitu t e a separat e cat egory of exchange rat e arrange- 16
men t. The de fact o exchange rat e classificati on appears t o do a Oc
far be tter j ob i n predi cti n g exchange rat e vari abi lity i n IT coun- t
ober
tries t han t he de j ure classificati on of i n fl a ti on t argetin g. On-
2019
li ne Appendix 6 st udi es i n fl a ti on t argeti n g and exchange ra t e
classificati ons i n more det ail, with fu r t her evi dence t hat t he
4 1. A moving band refe rs to t he cases where peri ods of sus t ai ned appreci ations
are also evi dent; with crawli ng bands, changes are always i n t he di recti on of
depreci ati on.
i n fl a tion t argetin g label i s not a suffici ent st a ti sti c for exchange

rat e classificati on.
Ill.F. Capital Mob i l ity, Multiple Exchange Ra tes, and Parallel Downloaded
Marke ts
In mos t of t he literat ure on classifyin g exchange rat e arrange-
ment s, t he relat ed i ssue of capital mobility has been ignored al- fr
t oge t her. Thi s omi ssi on i s a t odds with recurrent d i scussi ons of om
t he i mpossi ble trinity and t he macroeconomi c poli cy t r i lemma or https
d i lemma (Obstfeld and Taylor 2003; Obstfeld, Shambaugh, and :

//academ
Taylor 2005; Gouri nchas and Obs tfeld 2012; Rey 2013). These pa-
pers poi n t edly connect t he choi ce of exchange rat e regime no t only
t o t he ability t o conduct i ndependent mone t ary policy but also t o i
c
t he ext ent of capital mobi lity. .
oup
To address t h i s i ssue, we compile a {0,1} i ndex of exchange .

8m/qje/a
rat e res t r i cti ons t ha t spans 1946-2016, offeri n g a much longer
coverage t han prior st udi es. Our i ndex, whi ch places significant
emphasi s on parallel exchange marke t premi a, i s admittedly nar- rti
cle,abs
row compared with earli er i ndexes t hat a ggre ga t e a wi de vari-
e ty of (mostly) de j ure capit al fl ow and exchange res t r i cti ons.42
However, because our measure i s market based (drawi n g on our t
racU134/2/599/527
parallel premi um dat a and country chronologies), and fo cuses on

t he exchange rat e itself, it i s a nat ural complement t o our clas-
sificati on al gorithm and i s i n t ended t o be parti cularly useful i n
st udi es designed t o compare (or cont rol fo r) t he effect s of different
exchange rat e re gimes. We emphasi ze further i n Onli ne Appendix
4128
7 t hat t he new i ndex capt ures different feat ures of cont rols t han
exi s tin g i ndexes and should be vi ewed as a complement, not a by
substit u t e. gues
As descri bed i n Secti on 11. B, t he fi rst st ep of our exchange
rat e arran gement classificati on i s t o de t ermi ne whe t her t he ex- t
on
change ra t e i s unita ry. The IMF's AREAER (Annual Report on 16
Exchange Arrangement s and Exchange Res t r i cti ons) provi des an Oc
annual u pdat e on whe t her a country has an offi ci al dual marke t or t

ober
multiple exchange rat e practices妞 However, AREAER i n forma- 2019

tion only perta i ns t o t he de j ure syst em i n place, whi ch i n different
42. Kose et al. (2003) develop a de fact o model of capital marke t openness bu t
do no t fo cus on exchange rat e rest ri cti ons.
43. The IMF report i s complemen t ed with t he publi cati ons by Franz Pi ck and
lat er hi s firm (In te rnati onal Currency Analysi s) and P i ck and Sedillot (1971). The
AREAER report also offers det ai led information on a wi de class of capital and
situations may either unders t a t e or overst a t e t he ext ent t o whi ch

capital i s mobi le across borders.
Illegal (or i n formal) parallel marke t s not recorded i n t he IMF
report have been common a t vari ous st a ges of t he post -World War Downloaded
II era and have oft en accoun t ed fo r a significant share of t he ac-

tivity i n foreign exchange marke t s (see t he country chronologies
i n t he Onli ne Appendi x). In t hese cases, relyin g on AREAER ex-
elusi vely would unders t a t e t he i mport ance of de fact o exchange fr
om
cont rols. Furt hermore, marke t i mperfe cti ons (illiqu i dity, for i n- https
st ance) will also t end t o depress capital mobi lity. Limited capital
mobi lity, what ever its cause, i s often accompa nied by persi s t ent :
//academ
or chroni c h igh parallel marke t premi a, a market -based signal we
i ncorp orat e i n our i ndex.44 At t he same ti me, it i s also t he case
t hat t he legal res trictions de t a iled i n t he IMF's annual report may i
c
.
oup
be routi nely ci rcumvent ed i n prac ti ce (see Mat h i eson and Roj as-
.
Suarez 1992), so t hat relyin g exclusi vely on de j ure chronologies 8m/qje/a
can also pot enti ally overst a t e t he e ffectiveness of cont rols and
t here fore underes timat e t he act ual de gree of capital mobility.
In t h i s cont ext, i n formation on parallel market exchange rti
cle,abs
rat es and premi a can provi de a "de fa ct o" sense of t he e ffective-
ness of cont rols and complement t he chronology on t he de j ure t
racU134/2/599/527
unita ry/dual/multiple exchange rat es. The mont hly i ndex we con-
st ruc t fo r 192 countri es or t erritori es from 1946 t hrough 2016 i s
t herefo re based on bot h a de j ure and de fact o component and on
t he answers t o t hree questi ons: (i) i s t here a de j ure (o ffi ci al) dual
marke t?; (ii) i s t here a de j ure sys t em of multiple exchange ra t es?;
(iii) i s t here an i n formal parallel market (tolerat ed or outrigh t i l- 4128
lega l), and, if t here i s, i s t he parallel marke t premi um above 10%
over t he maj ority of a movi n g 12-mont h peri od? If t he answer i s by
yes t o any of t hese ques tions, t he i ndex t akes on t he value of 1. It gues
i s O ot herwi se.45 t
on
How do t he v arious a pp roaches t o measuri n g capital mobi lity
16
compare? Conceptually a t leas t, a count r y can have a plet hora of Oc
capital account res tri cti ons and still have a de fa ct o and a de j ure t
ober
unified exchange rat e; t he converse i s no t t rue. If t he answers
2019
current account res tri cti ons, which serve as a common st arting poi nt for many of
t he avai lable i ndexes of capital mobi lity, as di scussed in Onli ne App en dix 7.
44. The premi um i s defi ned as 午，the percent age difference bet ween t he
parallel market and the offici al exchange rat e.
45. Re fi nement s t o t he i ndex t hat allow for values bet ween O and 1 are cer-
t ai nly a possi ble ex t ensi on.
t o ques tions (i) and (ii) are yes, t hese are de j ure cont rols. If t he
answer t o question (iii) i s yes, it i s difficult t o see how a signifi-
cant and sust ai ned ga p bet ween t he offi ci al and t he parallel mar-
ke t exchange rat e can persi s t i n a country where capital moves Downloaded
freely and rapidly across its borders.46 Therefore, t here mus t

be res t r i cti ons or market i m perfe ctions t ha t prevent thi s from
happeni n g.
In prac ti ce, our assessment i s t hat by lim itin g our fo cus t o fr
om
t he st ruc t ure of t he foreign exchange market, t he i ndex may pro- https
vi de a lower bound on capital cont rols i n some cases. For i ns t ance,
measures, such as t hose i n t roduced by Iceland (whi le mai n t a i n i n g :
//academ
a unified exchange rat e) durin g its 2007 cri si s, are not captured
i n our IRR i ndex. Based on t he ext ens i ve i n formation from paral-
lel marke t s we i nclude i n t h i s st udy, we have reason t o conclude i
c
.
oup
t ha t ot her i ndexes i n t h i s literat ure peri odi cally suffer from t he
.
opposite bi as. Specifically, t he i mport ance of cont rols appears over- 8m/qje/a
st a t ed by t he exclusi ve reliance on a de j ure policy narrative; t h i s

u pward bi as i n capital cont rol i ndexes seems parti cularly acut e,
for i ns t ance, among t he many small i sland st a t es t hat are other- rti
cle,abs
wi se globally i n t egra t ed.47
With t hese caveat s i n mi nd, t he t op panel of F igure VI plo t s t
racU134/2/599/527
t he i ndex (as a share of all i ndependent count r i es) with and with-
out weigh t s t hat reflect country shares i n world GDP. Alt hou gh
t he i ndex i s available si nce 1946, GDP weigh t s are only avail-
able for many count r i es si nce 1950. About 70% of all count r i es
di d no t mee t t he criteri a of a unified exchange marke t i n 1950.
In t he 1960s, t hat share drops t o around 50%, as many advanced 4128
economi es moved t o elim i na t e multip le exchange rat e prac ti ces
(an i mportant goal of t he IMF a t t he time, as di scussed by De by
Vri es 1969, and shown i n F igure III, Panel C). The ne xt round of gues
capital marke t i n t egra tion occurred i n t he 1990s, as t he former t

on
Sovie t bloc j oi ned global capital market s alongsi de those emerg-
i n gmarke t s t hat regained capital marke t access a fter long deb t
16
Oc
cnses. t
ober
Si nce mi d-2014, many developin g and emergin g market s, par-
ticularly (but no t exclusi vely) t hose t hat rely on pr i mary com- 2019
modity export s, have seen foreign exchange reserves dry u p and
46. De fact o capital mobi lity re fers here t o cases where t he e xi s ti n g de j ure
con t rols are no t bindi n g, either because t hese are bei n g ci rcumvent ed or because
t hey have become out moded or obsolet e.
47. See Onli ne App endi x 7 and Onli ne App en dix F igu re A. 13.
All i ndependent coun tries

100
90
Downloaded
80
70
60 Share o f countries (soli d line) fr
00000
5432l om
`........ .. / https
\
`.--`“'寸 ..
.. J,...`_,俨
:
//academ
..._,、己一一·-I..
II
Share we ighted b y GDP (dashed line) -,
.
I i
c
.
` .....俨 ...
oup
。 .......-"、一--...- .
8m/qje/a
1950Ml 1960Ml 1970Ml 1980Ml 1990Ml 2000Ml 2010Ml
Advanced econom i es
rti
000000000
98765432l cle,abs
t
racU134/2/599/527
Share o fcountri es (soli d li ne)
4128
•...,-...-t Share we ighted b y GDP (dashed line) by

,_ gues
'----..－一，
II l ' ,
。
`',__
、一 t
16
on
1950Ml 1960Ml 1970Ml 1980Ml 1990Ml 2000Ml 2010Ml Oc

t
ober
FIGURE VI
Share of Independent Countri es with Dual, Multiple, or Parallel Exchan ge Rat es, 2019
J anuary 1950-S epte mber 2016
Sources: Int ernati onal Monet a ry Fund, In ternational F i nanc i al S ta tis tics and
Exchange Arrangemen ts and Exchange Res tr i ctions; Rei nhart and Rogoff (2004)
and sources cited t herei n; and au t hors'calculations. The Coun try Chronologies
t hat supplement this arti cle show t he evolution of t he anchor currency on a
coun try-by-coun try basi s and whe t her a sys t em of dual, multiple, or parallel ex-
change rat es was in place. The number of countri es i ncreases from 72 in 1946 t o
184 i n 2016.
government s have t urned once a gai n t o capital cont rols. Under

t hese conditions, parallel marke t s have reemerged, particularly
i n A介ica, t he Mi ddle Eas t, and Cent ral Asi a. Parallel marke t pre-
m i a have r i sen, i n t o t he t hree- and fo ur-digit range i n several Downloaded
cases. Despite t h i s recent revi val of foreign exchange cont rols,

which has been mos t ly confin ed t o lower-i ncome countri es, global
capital mobility (by t h i s measure) i s higher s i nce t he m i d-1990s.
Perhaps t he combi nati on of i ncreasi n gly mobile capital across bor- fr
om
ders and t he st ubbornly h igh share of countri es t hat continue with https
li mited flexibi lity exchange rat e arran gement s (F igure III, Panel
A) can help explai n t he sust ai ned and unprecedent ed r i se i n t he :
//academ
emergin g world's demand fo r reserves. The next secti on t akes u p
this and relat ed i ssues.
The t rend t oward fi nanci al globali zati on i s also evi den t i n i
c
.
oup
Chi nn and Ito's (2006, 2008) i ndexes (hence for t h CI), whi ch figu re
.
among t he mos t wi dely cited measures of capital mobi lity. Sub- 8m/qje/a
sequen t ly updat ed and expanded, CI covers 182 count r i es over

1970-2015. Indeed, t he ti me-seri es correlation of t he CI Index
and ours i s 0.97 for t he full sample (see Online Appendix F igure rti
cle,abs
A. 12). We suggest t he CI i ndex should be i n t erpre t ed as an u pper
bound on t he presence of cont rols, whi le the IRR i ndex i n t roduced t
racU134/2/599/527
here provi des t he lower bound (see Onli ne Appendix 7 for de t a i ls).
IV. EXCH岱GE RATE STABILIZATION AND THE DEMAND FOR ANCHOR

CURRENCY AsSETS
Havi n g developed a quantita tive assessment of t he global 4128

evoluti on of t he world's anchor currenci es, exchange rat e arrange-
ment s, and exchange rat e res tri cti ons over seven decades, we t urn by
our a ttenti on t o t he i mpli cations of t hese t rends i n t he current gues
global financi al syst em. One appli cation i s t o a t opic t hat has t
on
a ttrac t ed the a ttenti on of scholars and poli cy makers ali ke for
16
more t han a decade now: t he surge i n reserve accumulati on si nce Oc
t he early 2000s by emergin g market s i n general and by China i n t
ober
pa rti cular. The self-insurance rationale fo r accumulatin g reserves
(often refe rred t o as t he demand for safe asset s, e. g., Caballero, 2019
Farhi, and Gouri nchas 2017) i s well known. We conj ect ure t ha t
t he persi st ence of less flexi ble exchange arran gement s may be
an i mport ant contributi n g fa ct or t o t he saf e asset buildup, whi ch
has li kely been amplified i n recen t decades b y t he t rend loosen-
i n g of capital and exchange cont rols (until recently). As exchange
and capital marke t res tri cti ons are reduced, it probably re qu i res
larger reserve i n t erventions t o achi eve t he same de gree of s t abi-

li zati on (as Ito and Yabu 2007 not e fo r t he case of J a pan, whi ch
un til 2003 made significant use of i n t erventi on t o reduce exchange
rat e volatility vis企vis t he dollar).48 Downloaded
It i s well unders t ood t hat countries wanti n g t o s t abi li ze ex-

change rat es have a st rong i ncentive t o mai n t a i n subs t anti al for-
eign exchange reserves. Thi s i s t he subj ect of a large t heore ti cal
and empirical literat ure goi n g back t o t he 1980s (see t he di scus- fr
om
si on i n Obstfeld and Ro goff 1996 ) 应 More recent work by Kori nek https
(2013), Bussi ere et a l. (2015), and Heat hcot e and Perri (2016) has
explored t he t rade-off bet ween usi n g st erili zed i n t erventio n t o s t a- :
//academ
bilize t he exchange rat e versus usi n g capital cont rols t o mai n t a i n
mone t ary i ndependence. One likely reason fo r t he t rend decli ne
i n capital cont rols i s that t here has been a continui n g r i se i n i
c
.
oup
t rade relative t o i ncome i n mos t count r i es, often i nvolvin g com-
.
plex supply chain ne t works. As t rade becomes more i n t egra t ed, 8m/qje/a
capital cont rols become easi er t o evade, and t here fore much less
effective. That count r i es with relativel y i n fl exible exchange rat es
would hold subst an ti al fo reign exchange reserves i s hardly a con- rti
cle,abs
t roversi al proposition. Wha t has become a pp arent i n recen t years
i s t ha t even countries with relatively more fl exi ble managed fl oat- t
racU134/2/599/527
i n g exchange rat e syst ems find it helpful t o have significant re-
serves on hand, particularly t o help s t abili ze exchange rat es dur-
i n g peri ods of duress. (As Gabai x and Maggiori 2015 poi n t out, a
small count r y peggin g t o t he dollar does not necessari ly have t o
hold all its hard currency reserves i n dollars.) Of course, i n many
ways, J a pan's pre-2003 successf ul foreign exchange i n t erventi on 4128
has been a model for man y managed fl oatin g re gimes.
by
gues
IV.A. The Imp ossi ble Tri n ity and t he 2003-2013 Reserve Surge
t
Si nce t he IMF was es t ablished a t t he end of World War II, on
no peri od has witnessed a comparable surge i n t he s t ock of re- 16

Oc
serves held by cent ral banks across the world. As i s well known,
t
this war chest of reserves was built pr i marily by emergin g mar- ober
ke t s, no t ably Asi a and most famously China. A fa st-growi n g 2019
48. Obs tfeld, Shambaugh, and Taylor (2010) and Ai zenman, Chi nn, and Ito
(2013, 2016) also i nves tiga t e how t he tri lemma i n t era cts with t he Triffin di lemma
i n ligh t of t he h igh demand fo r exchan ge rat e managemen t.
49. Virtually all coun tri es with relativel y infl exi ble exchange ra t e re gi mes i n
our dat a set m ain tain signifi can t levels ofr eserves, and t hese levels have i ncreased
as capital account res tri cti ons have fallen in recent years.
shex 0fg ith eSS flexi bl e
ean
arch
90 un .tnes wm
cor
e a re g es
, ___ _ - - , - _ _,
te
、
80
『
、
, ,,
、
、
、
-- ,,
\`
、
7060 ,
,,' - ,
, ,_
、
\`
__
、
、
、
,_ __` _ ( ,'
Downloaded
、
、、
、
-, -
g ~, g >
50
40
fr
30 om
20 Share of countri es with https

dua l/multiple/parallel exchange rates
10 :
//academ
。
1946 1956 1966 1976 1986 1996 2006 2016
i
c
FIGURE VII .
oup
Exchan ge Rat e A汀angements and Capital Mobility, 1946-2016 .

8m/qje/a
Source: Au t hors'calculati ons based on F igu res IV and V.
literat ure has exami ned t he causes of t hat growth. Some parti
cle,abs
pers have s t ressed t he precautionary, self-insurance mo tive (see
Gouri nchas and Obstfe ld 2012), while ot hers have h ighligh t ed t he
mercanti li s t mo tive and t he desi re t o avoi d or li mit exchange rat e t
racU134/2/599/527
a pp reci a ti on (Dooley, Folkert s-Landau, and Garber 2003; Ai zen-

man and Lee 2007).
Connectin g t h i s di scussi on t o t he dat a, we recall that it was
shown i n t he previ ous secti on (F igure III, Panel A) t hat li mited
fl exibi lity arran gement s still domin a t e t he landscape. At t he same
4128
time, we estimat ed t hat about 80% of all count r i es had abandoned
t he kinds of exchange cont rols t hat led t o a fra gment ed fo reign by
g
exchan e marke t (F igure VI, t op panel). Combi n i n g informati on gues
from F igures III and VI, t hese t wo t rends i n exchange rat e ar-
rangement s and capital marke t i n t egra tion are connect ed i n F ig- t
on
ure VII. Because we are fo cusi n g on t he unweigh t ed measures, 16
t he seri es s t art i n 1946. F igure VIII, t op and bottom, connect re- Oc
serve accumulation t o the ri s i n g share of countri es with limited t

ober
exchange rat e fl exibi lity (top panel) and t he decli ne i n exchange 2019
cont rols, or r i si n g capital mobi lity (bo ttom panel). 50
50. The bui ldup i n reserves may have been especi ally acute durin g thi s period
when many emergi n g market s were also dealin g with a severe capit al infl ow
problem (as documen t ed by Re i nhart, Re i nhart, and Trebesch 2016 and tryi n g t o
avoi d excessi ve currency a ppreci a ti on as s t ressed by Levy-Yeya ti, St urzenegger,
and Gluzmann 2013).
The incidence of limited exchange rate flex咖lity
90
Share of countries with less flexi ble
80 exchange rat e re gimes
Downloaded
,、,-_..｀一一、 ,-..---＿，一、
：『«'，了',＇｀｀｀｀－－:--,,、、～～＇＿＿，，产＇，＇，／1~一、、
70
fr
om
40 、_(\.._.,/ https
30
＼～一＾v/ \ _ ／广 :
//academ
20
Share o f emerging and developing colllltry
10 reserves in total world reserves
i
c
。 .
oup
1950 1960 1970 1980 1990 2000 2010
.
8m/qje/a
Are reserves a substitute for capital con trols?
80 rti
cle,abs
70
Share o f countries with dua l/multiple
60 parallel exchange rates t
racU134/2/599/527
50
40
30
20 4128
10
by
。 gues
1946 1956 1966 1976 1986 1996 2006 2016
t
on
FIGURE VIII
16
Reserves and Two Si des of t he Impossi ble Tri n ity, 1950-2015 Oc
Sources: Int ernati onal Monet a ry Fund, In ternational F i nanc i al S t a tis tics; Bu- t
ober
reau of Economi c Analy s i s; and au t hors'calculati ons.
2019
The t rends i n reserves, exchange rat e fl exi bi lity, and capit al

mobility shown here are no t a substitu t e fo r popular explanati ons
t hat st ress self-insurance and mercantili st mo tives behi nd t he
2003-2013 h i s t ori c episode of reserve accumulati on. Of course, it
i s also t he case t hat t h i s i s a peri od of t rend financi al deepen-
i n g, and t he expansi on of global capital marke t s i s ano t her reason
count r i es wantin g t o st abi li ze exchange ra t es m igh t need larger

reserves on hand. Nevertheless, t he fa ct t hat such a large fr ac ti on
of t he world a i ms t o st abi li ze its exchange rat e t o some de gree,
as we have demons t rat ed here, may be an underappreci a t ed fac- Downloaded
t or i n t he global t rend t oward h igher reserves t ha t merits f urt her

research, i ncludi n g panel analysi s and country case st udi es. One
i n t erestin g ques tion i s whet her i ndividual countries' i ncentives
t o s t abilize t hei r exchange rat es around t he dollar (or t he euro fr
om
or a basket) may produce longer syst emi c problems if t he "safe" https
asse t t urns out t o be less safe t han i nves t ors i magine. The r i sk
t ha t short-term exchange rat e s t abi li za tion exacerbat es longer- :
//academ
t erm ri sks of exchange rat e des t abilization i s a vari ant of t he
modern-day Triffin (1960) dilemma, recently addressed i n Farhi,
Gouri nchas, and Rey (2011), Obstfeld (2013), and Farhi and Mag- i
c
.
oup
giori (2018).
.
8m/qje/a
V. CONCLUDING REMARKS: WHICH ANCHOR WILL HOLD?

By placi n g t he i ssue of anchor currenci es i n a comprehensi ve rti
cle,abs
q uantita tive h i s t ori cal perspective, thi s a rti cle offers new i nsigh t s
i n t o cont emporary global finance i ssues ran gin g from t he i m pos- t
racU134/2/599/527
si ble trin ity t o t he modem-day Triffin dilemma t o t he renewed
primacy of t he dollar as t he world's mos t i m port an t anchor cur-
rency. Perhaps because of wi despread hard-currency t rade i nvoi c-
i n g and deb t denomi nation, t he revealed pre ference of many of
t he world's cent ral banks i s t hat exchange rat e s t abi lity remai ns
a fu ndament al priority t hat has broad i mpli cati ons fo r how shocks 4128
t ransmit domes tically and i n t ernationally. Countries'continui n g
desi re t o s t abilize exchange rat es despite generally reduced ex- by
change rat e res tri ctions and i ncreasi n g capital mobi lity i s pot en- gues
tially a key element of developin g economi es' vas t accumulation t

on
of advanced economy reserves i n addition t o t he usual "safe asse t"
16
rati onale. Oc
What t opics and areas would enhance our unders t andi n g of t
ober
t he i n t ernational financi al syst em i n general and t he anchor cur-
rency ques ti on i n parti cular? Alt hough t ha t li s t i s long, we ret urn 2019
t o Chi na and its rapidly expandi n g global role. Much more i s

known about Chi na's global connecti ons t hrough t rade of goods
and servi ces t han about its growi n g i n t ernati onal fi nanci al li nk-
a ges. Chi nese offi ci al lendi n g t o a broad ran ge of emergin g and
developin g count r y government s i s not captured i n t he ext en-
si ve dat abases of t he World Bank, IMF, or Bank of Int ernati onal
Settlement s. Much of t h i s lendi n g i s done through its develop-

ment banks, but credit li nes and swap arrangement s bet ween t he
PBC and ot her cent ral banks are also rapidly expandi n g. Gi ven
t he opa queness of t hese cross-border financi al t ransactions, it i s Downloaded
not clear whe t her t he U.S. dollar or t he renmi nbi i s t he domi nant
currency i n t h i s new source of lendin g.
Over ti me, one m igh t expect t he Chi nese renmi nbi, with its
far-reachin g t rade and finance ne t work, t o serve as an anchor fo r fr
om
some countri es. Indeed, it i s possi ble t hat t he Chinese renmi nbi https
has already become (or made significant i nroads as) an anchor
currency. In summer 2015, t he modes t devaluation of t he ren- :
//academ
m i nbi t r iggered marked depreci a ti ons of several Asi an currenci es
(and ot hers out s i de Asi a). By our exchange rat e me t r i c, however,
Chi na remai ns pa rt of t he dollar bloc, and it i s unclear how many i
c
.
oup
countri es migh t move alon g with t he renmi nb i if it were ever t o
.
separat e from t he U.S. dollar. We have shown t hat duri n g t he lat- com/qje/a
t er s t a ge of Bretton Woods, a cursory i nspection of exchange rat e

practices i n Europe would have led one t o conclude t hat t he U.S.
dollar was t he across- t he-board anchor. It was only when Ger- rti
cle,abs
many's DM separat ed from t he dollar that it became evi dent t hat
t he European economi es had already t ransitioned from a dollar t o t
racU134/2/599/5274128
a DM anchor. (An i n t eres tin g parallel i s t hat even as t he res t of Eu-
rope followed t he dollar until t he end of Bretton Woods, Germany
was already maki n g subs t anti al government-t o-government loans
i n DM, layi n g the groundwork fo r t he DM bloc t hat emerged as
Bretton Woods f ell a part.)
If i ndeed count r i es'desi re t o st abilize exchange rat es i s a
cont r i buti n g fa ct or t o emergin g marke t s'reserve accumulation,
t hen an emergence of t he renmi nbi as a maj or reserve currency by
could have i m port an t i m pli cati ons for t he value of t he dollar and gues
advanced count r y i n t erest rat es, and pot enti ally even deb t sus- t
on
tainability fo r some advanced economi es.
16
Las t, we reiterat e t hat our al gorithm for j oi n tly de t ermi n- Oc
i n g a count r y's anchor currency and its de gree of exchange rat e t
ober
fl exibi lity shows a world where relativel y inflexi ble exchange rat e
regimes remai n ext remely i m port ant, and where t he dollar's dom- 2019
i nance as an anchor/reference currency a pp ears t o be as great as

it was under Bretton Woods. Whe t her t h i s t rend will continue i s
uncertai n, but i n any event, t he a pp roach t o anchor classificati on
developed here i n principle should help de t ect future shifts, such
as t he emergence of t he renmi nbi as a maj or anchor or ref erence
currency.
LONDON SCHOOL OF ECONOMICS

HARVA即 UNIVERSITY
HARVA即 UNIVERSITY
Downloaded
SUPPLEMENTARY MATERIAL
An Onli ne Appendi x for t h i s a rticle can be fo und a t The

Quarterly J ournal of Econom i cs onli ne. The dat a t hat gener- fr
om
a t ed t ables and figures i n this article can be fo und i n Ilzet zki, https
Rei nhart, and Ro goff (2018) i n t he Harvard Dat averse,
doi :10.7910/DVN/I DEXPY. :
//academ
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2019

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EXCHANGE ARRANGEMENTS ENTERING THE

TWENTY-FIRST CENTURY: WHICH ANCHOR WILL HOLD?*

I. INTRODUCTION AND OVERVIEW

The a rti cle explores t he t rans fo rmati on of t he global exchange

more multip olar s ys t em, t he U. S. dollar rem ai ns by fa r t he mos t

financi al syst em and great er macroeconomi c st abi lity i n much of

Our fin d i n gs are consi s t en t with a growi n g recen t literat ure

r itori es over 1946-2016. Compared t o earli er exchange rat e clas- t

anchors). In prin ciple, any exchan ge rat e classificati on al gorithm

dat e anchors—p arti cularly t he euro—and great er exchange rat e

t hrou gh t hei r effect s on outp u t and i n fl a tion) from managed fl oat-

of t he so-called exchange rat e t r i lemma (see, e. g., Obstfeld and t

3. Frankel and Wei (1994) made an early contri bu tion i n narrowing i n on t he

The concludi n g section looks forward and discusses t he possi bi l-

II. ANCHOR CURRENCIES AND EXCHANGE 卧TE REGIMES:

seven decades. The classificati on al gorithms perform t wo i n t er-

on previous effort s t o classify exchange arran gement s (e. g., Rei n-

fl oat s), (ii) allow fo r de fa ct o basket s of currenci es as anchors, (iii)

h igh- fre quency estimat es of t he ti mi n g ofr egime shifts.

t wo decades of t he t wenty-first cent ury present s a number of chal- 16

advent of t he euro poses t he ques tion of whet her exchange rat e

t he nation-st a t e level, as we do (in which case t he i ndi vi dual eu-

i n t ervention i n mos t cases.

Il. B. Measuri ng Excha nge Ra te Flexi bility 16

me t hodolo gy of classifyin g exchange ra t e fl exi bility and t hen de-

Declinin g Volatility i n Dollar-Deu t schmark (Euro) Exchange Rat e .

i ncludes a coarse classificati on, i ncludi n g 6 cat egori es of exchange

Currenci es t hat are classified as freely fl oati n g become candi da t e 16

anchors i n t he relevan t years.6 In t he current classificati on, t he Oc

has been st rongly li nked t o t he dollar and i s no t convertible. In 2019

5. The candi da te anchors are t he U. S. dollar, t he Deut schmark and French

be lat ently anchored t o t he renmi nbi, but fo r mos t of our sample,

dollar-euro-yen, with e qual weigh t s on t he anchors i n each bas-

great er t han that of t he previ ous mon t h. Furthermore, we clas-

7. Where dat a on t he dual exchange rat e are unav ailable, we classify t he t

of t he sample t o less t han 5% at its end. t

Next, when a count r y had a preannounced exchange rat e ar-

j ure convention of t he Bretton Woods s ys t em, whi ch allowed fo r

a currency as havi n g a narrow band w ith respect t o its anchor if

w i de band, yi eldi n g qu ite robus t result s. 15 However, as shown i n

fi nanci al cri s i s o f 2008-2009, and t he al go rithm i den tifies t hat

has a ttempted t o li m it exchange rat e volatility vi s-a-vi s t he dollar

secti on describes our procedure t o separat e currenci es t hat are gues

freely fl oati n g from managed fl oat s. t

II.C. Managed or Freely Floati ng? 16

fl oat freely. In t he tw en ti et h cent u ry, it was rare fo r emergin g mar-

currenci es as fl oatin g (over a t least part of t he sample), t he maj or-

or vari ability of t he exchange rat e. The narratives provide evi-

Our classificati on i s conservative (pot enti ally bi ased t oward gues

classifyin g countri es as freely fl oatin g) for tw o reasons. Firs t, cen- t

bank expli citly reserves t he righ t t o i n t ervene i n foreign exchange

The mai n conclusi ons can be summari zed as follows. In addi-

i ncreased its already vas t war chest of fo reign exchange reserves

II. D. Anchor or Reference Currency by

possi bi lity t hat a currency i s anchored t o a basket of currenci es.

candidat e anchor. Second, we allow fo r the possi bi lity t ha t a cur-

dollar had a 26% weigh t i n t he basket, but t he basket also pu t

as it t ransitioned from a dollari zed economy i n t he lat e 1990s t o gues

a euro anchor i n t he early 2000s. 21 t

Our al gorithm fo r anchor currency classificati on proceeds as

ot her end of t he spect rum, countries with arrangement s t ha t are

i ari sati s fi ed our criteri on fo r a 2% band a gains t bot h t he dol-

currency, t he al gorithm oft en classified cases t hat m igh t ot her- gues

wi se have been elusi ve. 24 t

进入21世纪的交流安排哪一个锚将起作用？

进入21世纪的交流安排哪一个锚将起作用？