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Asset Prices, Leverage and Portfolio Rebalancing Drive Global Capital Flows Cycle
The amount of leverage—borrowed funds relative to the value of underlying assets—increases for risky holdings during downturns, motivating their ultimate sale to achieve a more secure financial position. The opposite occurs during upswings, as risky assets gain favor.
Russia Counters Sanctions’ Impact with Currency Controls, Averts Crisis (for Now)
The Russian central bank responded to unprecedented sanctions with strict capital controls that have stabilized the value of its currency—the ruble.
Emerging-Market Economies Face COVID-19 and a 'Sudden Stop' in Capital Flows
A rise in global risk at a time of investor risk aversion led to a rapid flight from emerging-market assets.
Don’t Look to the 2013 Tantrum for the Effect of Tapering on Emerging Markets
Many emerging markets have improved their external balance sheets since the volatility evidenced during the "taper tantrum" of 2013 and would be much less vulnerable to Federal Reserve tapering today.
Trade Relationships Affect U.S. Dollar Appreciation’s Impact Across States
The value of the U.S. dollar against other currencies has appreciated, making most goods produced in the U.S. more expensive overseas during the past year.
Understanding the Demand for Currency at Home and Abroad
Currency is traditionally the largest liability of a central bank and today accounts for 36% of the Federal Reserve?s liabilities, or $1.59 trillion.1 The Fed supplies currency to meet demand, so changes in the demand for currency will be an important determinant of how the Fed?s balance sheet evolves in the future. In this Chicago Fed Letter, we examine currency demand around the world and over time to learn about the range of possibilities for how U.S. currency demand might change. We then project currency demand over the next decade in several illustrative scenarios.