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HKS Authors

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Minos A. Zombanakis Professor of the International Financial System


This article provides a comprehensive history of anchor or reference curren­cies, exchange rate arrangements, and a new measure of foreign exchange restric­tions for 194 countries and territories over 1946-2016. We find that the often cited post-Bretton Woods transition from fixed to flexible arrangements is overstated; regimes with limited flexibility remain in the majority. Even if central bankers' communications jargon has evolved considerably in recent decades, it is apparent that many still place a large implicit weight on the exchange rate. The U.S. dollar scores as the world's dominant anchor currency by a very large margin. By some metrics, its use is far wider today than 70 years ago. In contrast, the global role of the euro appears to have stalled. We argue that in addition to the usual safe as­sets story, the record accumulation of reserves since 2002 may also have to do with many countries' desire to stabilize exchange rates in an environment of markedly reduced exchange rate restrictions or, more broadly, capital controls: an important amendment to the conventional portrayal of the macroeconomic trilemma.


Reinhart, Carmen. "Exchange Rate Arrangements in the 21st Century: Which Anchor Will Hold?" Quarterly Journal of Economics 34.2 (May 2019): 599-646.