04/12/2025 - 12:45 - Doyen 22

Thomas Goda

(Universidad EAFIT)

will give a presentation on 

You are worth that to me – Uncovering the hierarchy of central bank currency swaps

Abstract

Bilateral central bank currency swaps are crucial elements of the Global Financial Safety Net (GFSN). This paper examines whether the scale and distribution of swap provision reinforce US-dollar dominance and how the People's Bank of China (PBOC) resists dollar hegemony through its currency swap strategy. Using comparative descriptive statistics and a two-step Heckman selection model, we analyze a novel panel dataset covering all bilateral swaps between 2007 and 2023. We derive two main arguments: First, US Federal Reserve (Fed) swaps target systemically important financial core countries where dollar-denominated borrowing affects US financial stability. Second, periphery countries deemed unworthy of US Fed swaps rely on alternatives, mostly renminbi-denominated PBOC swaps. Our results show that the GDP per capita of countries receiving PBOC swaps is about half that of Fed swap recipients. China primarily targets periphery countries with which it has strong trade relationships. It appears that these swap provisions have contributed somewhat to the renminbi's internationalization; however, the PBOC's swap size is less than one-sixth of the Fed's. We conclude that the existing swap hierarchy nourishes US dollar dominance predominantly through swap scale. The current monetary system is therefore likely to persist for the foreseeable future, sustaining the dollar's international use in core financial markets.

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