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National Currencies in International Settlements: Main Mechanisms

Author

Listed:
  • Alexey Ponomarenko

    (Bank of Russia)

Abstract

I consider the change in the standard mechanism for international settlements when the transition to settlements in national currencies happens. We assume settlements in national currencies as a bilateral foreign exchange market without the use of the banking system of a third country. This functioning should not be confused with the choice of the trade contracts currency, the reserve currency, or the currency of domestic banking products. In the case of the effective functioning of bilateral foreign exchange markets and the possibility of arbitrage transactions, the transition to settlements in national currencies does not affect the exchange rate or monetary indicators. With an imbalance in bilateral cash flows, market mechanisms (e.g. exchange rate fluctuations) prevent the systematic accumulation of foreign financial assets on the balance sheet of the banking system of one of the countries. In addition, there are quasi-market schemes in the foreign trade, which involve the accumulation of foreign financial assets on the balance sheets of specialised banking institutions.

Suggested Citation

  • Alexey Ponomarenko, 2023. "National Currencies in International Settlements: Main Mechanisms," Russian Journal of Money and Finance, Bank of Russia, vol. 82(3), pages 35-47, September.
    • Handle: RePEc:bkr:journl:v:82:y:2023:i:3:p:35-47
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    cross-border settlements; settlement currencies; foreign exchange market; digital assets;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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