Welcome Remarks by President Powell at the Inaugural Conference on International Papers of the US Dollar

Good morning, and welcome to the inaugural conference on the international roles of the US dollar. Thank you all for participating and for lending your knowledge on this important topic. This conference marks the first use of our new Martin Conference Center, which I hope you will enjoy.

The international financial and monetary system that emerged after World War II was defined by the centrality of the dollar. It is the world’s reserve currency and the most used for payments and investments. As outlined in recent Board team work, this global prominence was supported by the depth and liquidity of US financial markets, the size and strength of the US economy, its stability and openness to trade and capital flows, and international trust in institutions. from the USA. and the rule of law.1 Professor Barry Eichengreen will expand on some of these themes later this morning.

The dollar’s international role brings multiple benefits. For the United States, it reduces transaction fees and borrowing costs for US households, businesses and government. Its ubiquity helps to contain uncertainty and hence the cost of hedging for homes and domestic businesses. For foreign economies, the widespread use of the dollar allows borrowers to have access to a wider pool of lenders and investors, which reduces their financing and transaction costs. The dollar’s benefits as the dominant reserve currency have spawned an extensive academic literature. Yesterday’s article on the Treasury market by Alexandra Tabova and Frank Warnock extends this work significantly.

The Federal Reserve’s strong commitment to our price stability mandate contributes to widespread confidence in the dollar as a store of value. To that end, my colleagues and I are strongly focused on returning inflation to our 2% target. Fulfilling our dual mandate also depends on maintaining financial stability. The Fed’s commitment to our dual mandate and financial stability encourages the international community to hold and use dollars.

The widespread use of the dollar globally can also pose financial stability challenges that could materially affect households, companies and markets. For that reason, the Federal Reserve has played a key role in promoting financial stability and supporting the use of dollars internationally through our liquidity facilities. Central bank liquidity swap lines provide foreign central banks with the ability to provide US dollar funding to institutions in their jurisdictions. And the Foreign and International Monetary Authorities (FIMA) Repo Facility allows approved FIMA account holders the option to temporarily exchange their US Treasury bonds held by the Federal Reserve for US dollars. These facilities serve as liquidity support so that holders of dollar assets and participants in dollar funding markets can be confident that tensions will be eased when these markets are under stress. This guarantee, in turn, mitigates the effect of such strains on the flow of credit to US households and businesses. Both installations reinforce the dollar’s position as the dominant global currency.

Swap lines were widely used during the global financial crisis, the eurozone debt crisis in 2011 and the financial turmoil at the start of the COVID-19 pandemic in 2020. The article on central bank swap lines presented yesterday by Gerardo Ferrara, Philippe Mueller, Ganesh Viswanath-Natraj and Junxuan Wang provide new micro-level evidence on the usefulness of swap lines in providing cross-border liquidity to support the real economy.

Looking ahead, rapid changes are taking place in the global monetary system that could affect the dollar’s international role in the future. Most major economies already have or are in the process of developing 24/7 instant payments. Our own FedNow service will be online in 2023. And in light of the tremendous growth in cryptocurrencies and stablecoins, the Federal Reserve is examining whether a US central bank digital currency (CBDC) would improve on an already secure and efficient domestic payments system. As the Fed’s white paper on this topic notes, a US CBDC could also help maintain the dollar’s international position.two When considering the feedback from the article, we will not only think about the current state of the world, but also how the global financial system might evolve in the next 5-10 years. Jiakai Chen and Asani Sarkar’s article, which is on today’s program, and our distinguished speakers on this topic this afternoon, will provide important insights into this topic.

To summarize, I would like to emphasize the importance of the dollar to the US and global economies and financial markets. It is critical that we understand the channels, connections and effects of the dollar’s role.

In closing, I want to thank everyone for taking the time to participate in our discussion of the dollar’s international roles. This conference brings together world-class researchers, practitioners and policymakers dedicated to understanding and addressing these vital issues. I look forward to your opinions and hope you enjoy the conference.

1. See Carol Bertaut, Bastian von Beschwitz and Stephanie Curcuru (2021), “The International Role of the US Dollar,” FEDS Note (Washington: Board of Governors of the Federal Reserve System, October 6). back to text

2. Board of Governors of the Federal Reserve System (2021), Cash and Payments: The US Dollar in the Age of Digital Transformation (PDF) (Washington: Board of Governors, January). back to text

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