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Uphill Capital Flows and the International Monetary System

Author

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  • Mr. Balazs Csonto
  • Mr. Camilo E Tovar Mora

Abstract

Uphill capital flows constitute a key transmission channel through which reserve accumulation can distort the stability of the international monetary system. This paper examines and quantifies the importance of this transmission channel by examining how foreign official purchases of U.S. Treasuries influences the U.S. yield curve at different maturities. Our findings suggest that a percentage point increase in foreign official holdings relative to outstanding marketable securities reduces the term premium by 2.0–2.4 basis points at maturities of 2–3 years. These estimates are then used to gauge the role of a global policy in reducing excess reserve accumulation?e.g., a composite global reserve asset or through global liquidity facilities. Findings show that a policy that reduces the demand for Treasuries by $100 billion would increase yields by 1.5–1.8 basis points.

Suggested Citation

  • Mr. Balazs Csonto & Mr. Camilo E Tovar Mora, 2017. "Uphill Capital Flows and the International Monetary System," IMF Working Papers 2017/174, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2017/174
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    Cited by:

    1. Mr. Camilo E Tovar Mora & Tania Mohd Nor, 2018. "Reserve Currency Blocs: A Changing International Monetary System?," IMF Working Papers 2018/020, International Monetary Fund.

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