Dollar’s centrality in FX markets makes it more volatile – study
Greenback’s use as ‘vehicle currency’ makes it more sensitive to external shocks, economists say
The centrality of the US currency in foreign exchange markets transmits volatility from non-dollar markets to the greenback, a new paper argues.
Swiss National Bank economists Cara Bordier, Lukas Frei and Simon Stalder use high-frequency trading data to show that the dollar’s involvement in 88% of transactions in the global FX market is partly explained by the greenback’s use as a “vehicle currency”: when a trader wants to buy euros for yen, they will leverage the better liquidity conditions of
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