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Mapping Global Debt: A New Measure of Currency Dominance and Uncertainty Shock Effects

Author

Listed:
  • Agustin S. Benetrix

    (Department of Economics, Trinity College Dublin)

  • Beren Demirolmez

    (European Stability Mechanism)

Abstract

We study currency dominance in global portfolio debt, focusing on the US dollar and the euro. Our key contribution is the Dominance Ratio (DR), a new indicator that refines the measurement of currency internationalisation by excluding debt held by the regions issuing those currencies (the US for dollars, the Euro Area for euros). Using the DR, we find that the internationalisation of the dollar and euro evolves slowly and remains unaffected by short-term uncertainty shocks. However, these shocks affect the geographical distribution of dollar and euro debt. Trade policy uncertainty reduces euro concentration, increasing relative dollar concentration, whilst geopolitical risk shocks diminish both absolute and relative dollar concentrations, particularly when adjusted for currency scale using the DR.

Suggested Citation

  • Agustin S. Benetrix & Beren Demirolmez, 2025. "Mapping Global Debt: A New Measure of Currency Dominance and Uncertainty Shock Effects," Trinity Economics Papers tep0925, Trinity College Dublin, Department of Economics.
    • Handle: RePEc:tcd:tcduee:tep1025
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    Keywords

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    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • G1 - Financial Economics - - General Financial Markets

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