- Title
- Currency Dominance Is Not Forever: Some Insights from a Non-linear Dynamic Model
- Author(s)
- Michael D Bordo Michael Bordo (Rutgers University and NBER )
- Cecile Bastidon Cecile Bastidon (U. Toulon & CAC-IXXI Complex Systems Institute, Lyon, and OFCE-Sciences Po, Paris )
- Abstract
- We propose stress tests based on an original International Monetary System (IMS) model with regime switchings. The model is calibrated for nine reference currencies from the beginning of the Classical Gold Standard to the present. Regime switchings in currency dominance are related to combinations of conditions on a multidimensional environment variable that includes five classes of shocks: technology; development; monetary, financial and fiscal institutions; democracy and conflicts; and the regulatory environment. We provide an original database of events for these five classes of shocks, which is used for calibration. The calibration highlights the important role of the democracy and conflicts component in regime switchings. The calibrated model is then used to perform stress tests on the current prospects of currency dominance for a broad set of scenarios. A salient result from the scenarios we tested is that the dominance of the US dollar is at most marginally affected. No other currency emerges as a major player, suggesting strong inertia in the system’s current centripetal dynamics.
- Creation Date
- 2026-08
- Section URL ID
- Paper Number
- 355
- URL
- https://gceps.princeton.edu/wp-content/uploads/2026/08/wp355_Bordo-Bastidon_CurrencyDominance.pdf
- File Function
- Jel
- C3, C82, E42, F33, G15, N2
- Keyword(s)
- International monetary system; Currency dominance; Democracy; Conflicts; Geopolitics; Monetary and financial graphs; Non-linear modeling; Conditional Markov chains
- Suppress
- false
- Series
- 3