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The Dollar’s Imperial Circle

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Abstract

In this paper we highlight a new channel through which dollar fluctuations can become a self-fulfilling pro-cyclical force. We call this mechanism “Imperial Circle” as it makes the dollar the dominant macroeconomic variable in the context of the current international monetary system. At the core of it, there is a fundamental asymmetry between the shrinking exposure of the “real” U.S. economy to global developments versus the growing global role of the U.S. dollar. Dollar appreciation leads to a decline in global economic activity, which in turn benefits, in relative terms, the dollar itself, reinforcing the initial appreciation and its effects.

Suggested Citation

  • Ozge Akinci & Gianluca Benigno & Serra Pelin & Jonathan Turek, 2022. "The Dollar’s Imperial Circle," Staff Reports 1045, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:95424
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    Cited by:

    1. Georgiadis, Georgios & Jarociński, Marek, 2025. "Global spillovers from multi-dimensional US monetary policy," Journal of International Economics, Elsevier, vol. 158(C).
    2. Schwartz, Herman M., 2024. "Triffin reloaded: The matrix of contradictions around global quasi-state money," MPIfG Discussion Paper 24/3, Max Planck Institute for the Study of Societies.
    3. Wang, Haibo, 2025. "Assessing dynamic connectedness in global supply chain infrastructure portfolios: The impact of risk factors and extreme events," Global Finance Journal, Elsevier, vol. 67(C).
    4. Yildirim, Zekeriya & Erdal, Fuat, 2026. "Global interest rates, US dollar, and global risk," The North American Journal of Economics and Finance, Elsevier, vol. 83(C).
    5. Degasperi, Riccardo & Hong, Seokki Simon & Ricco, Giovanni, 2026. "The global transmission of U.S. monetary policy," Journal of International Economics, Elsevier, vol. 161(C).
    6. Allen, Cían & Bems, Rudolfs & Boer, Lukas & Moussa, Racha, 2026. "Demand for safe assets and spillovers from the global dollar cycle," Journal of International Economics, Elsevier, vol. 160(C).

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    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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