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An analysis of transnational transfer of wealth through cross-border financial transactions

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  • Ahmed Mehedi Nizam

    (The Central Bank of Bangladesh)

Abstract

Cross-border financial transactions in fiat currencies facilitate transfer of wealth in real terms from the exporting to the importing country. The importing country gets the ownership of real assets and/or consumable goods/services, while the exporting one obtains some hard currencies with no intrinsic value, which serve the purpose of store of value and also represent purchasing power in the international market. Apart from export and import, all other transactions in current and capital account also add to the process of such transfer of wealth as mentioned above. Considering all such cross-border transactions along with the role of a country’s currency as a global reserve currency, here we algebraically quantify the extent of net non-monetary wealth that a particular country has transferred so far to the rest of the world in exchange of some fiat hard currencies. Then we use the algebraic formulation stated above to empirically calculate the amount of net real wealth transferred to (from) some major economies from (to) the rest of the world stemming from cross-border financial transactions and analyze their long term and short term dynamics using Vector Error Correction Model (VECM). Wealth as defined above along with its long term trends should allow countries rethink their hoarding pattern of foreign currencies as well as their trading behavior with the rest of the world.

Suggested Citation

  • Ahmed Mehedi Nizam, 2023. "An analysis of transnational transfer of wealth through cross-border financial transactions," SN Business & Economics, Springer, vol. 3(1), pages 1-31, January.
    • Handle: RePEc:spr:snbeco:v:3:y:2023:i:1:d:10.1007_s43546-022-00410-3
    DOI: 10.1007/s43546-022-00410-3
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    More about this item

    Keywords

    Cross border trade; Wealth redistribution; Hard currencies;
    All these keywords.

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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