The Curious Case of the Yen as a Safe Haven Currency
The Curious Case of the Yen as a Safe Haven Currency

Author: Mr.Dennis P. J. Botman

Publisher: International Monetary Fund

Published: 2013-11-06

Total Pages: 21

ISBN-13: 1475513429

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During risk-off episodes, the yen is a safe haven currency and on average appreciates against the U.S. dollar. We investigate the proximate causes of yen risk-off appreciations. We find that neither capital inflows nor expectations of the future monetary policy stance can explain the yen’s safe haven behavior. In contrast, we find evidence that changes in market participants’ risk perceptions trigger derivatives trading, which in turn lead to changes in the spot exchange rate without capital flows. Specifically, we find that risk-off episodes coincide with forward hedging and reduced net short positions or a buildup of net long positions in yen. These empirical findings suggest that offshore and complex financial transactions should be part of spillover analyses and that the effectiveness of capital flow management measures or monetary policy coordination to address excessive exchange rate volatility might be limited in certain cases.

Intra-Safe Haven Currency Behavior During the Global Financial Crisis
Intra-Safe Haven Currency Behavior During the Global Financial Crisis

Author: Rasmus Fatum

Publisher:

Published: 2016

Total Pages:

ISBN-13:

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We investigate intra-safe haven currency behavior during the recent global financial crisis. The currencies we consider are the USD, the JPY, the CHF, the EUR, the GBP, the SEK, and the CAD. We first assess which safe haven currency appreciates the most as market uncertainty increases, i.e. we assess which safe haven currency is the “safest”. We then use non-temporal threshold analysis to investigate whether intra-safe haven currency behavior changes, e.g. accelerates or decelerates, as market uncertainty increases. We find that the JPY is the “safest” of safe haven currencies and that only the JPY appreciates as market uncertainty increases regardless of the prevailing level of uncertainty. For all other currencies under study we find significant market uncertainty threshold effects. We extend our analysis to also consider intra-safe haven currency behavior before and after the global financial crisis.

The Dollar Trap
The Dollar Trap

Author: Eswar S. Prasad

Publisher: Princeton University Press

Published: 2015-08-25

Total Pages: 438

ISBN-13: 0691168520

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Why the dollar is—and will remain—the dominant global currency The U.S. dollar's dominance seems under threat. The near collapse of the U.S. financial system in 2008–2009, political paralysis that has blocked effective policymaking, and emerging competitors such as the Chinese renminbi have heightened speculation about the dollar’s looming displacement as the main reserve currency. Yet, as The Dollar Trap powerfully argues, the financial crisis, a dysfunctional international monetary system, and U.S. policies have paradoxically strengthened the dollar’s importance. Eswar Prasad examines how the dollar came to have a central role in the world economy and demonstrates that it will remain the cornerstone of global finance for the foreseeable future. Marshaling a range of arguments and data, and drawing on the latest research, Prasad shows why it will be difficult to dislodge the dollar-centric system. With vast amounts of foreign financial capital locked up in dollar assets, including U.S. government securities, other countries now have a strong incentive to prevent a dollar crash. Prasad takes the reader through key contemporary issues in international finance—including the growing economic influence of emerging markets, the currency wars, the complexities of the China-U.S. relationship, and the role of institutions like the International Monetary Fund—and offers new ideas for fixing the flawed monetary system. Readers are also given a rare look into some of the intrigue and backdoor scheming in the corridors of international finance. The Dollar Trap offers a panoramic analysis of the fragile state of global finance and makes a compelling case that, despite all its flaws, the dollar will remain the ultimate safe-haven currency.

Gauging the Safehavenness of Currencies
Gauging the Safehavenness of Currencies

Author: Alfred Wong

Publisher:

Published: 2017

Total Pages: 63

ISBN-13:

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This study assesses the 'safehavenness' of a number of currencies with a view to providing a better understanding of how capital flows tend to react to sharp increases in global risk aversion during periods of financial crisis. It focuses on how currencies are perceived by dollar-based international investors or, more specifically, whether they are seen as safe-haven or risky currencies. To assess the 'safehavenness' of a currency, we use a measure of risk reversal, which is the price difference between a call and put option of a currency. This measures how disproportionately market participants are willing to pay to hedge against appreciation or depreciation of the currency. The relationship between the risk reversal of a currency and global risk aversion is estimated by means of both parametric and non-parametric regressions which allow us to capture the relationship in times of extreme adversity, i.e., tail risk. Our empirical results suggest that the Japanese yen and, to a lesser extent, the Hong Kong dollar are the only safe haven currencies under stressful conditions out of 34 currencies vis-à-vis the US dollar.