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The Domestic Politics of the International Dollar Standard: A Statistical Analysis of Support for the Reserve Currency, 2000–2008

Published online by Cambridge University Press:  01 May 2013

Victor Shih  and
David A. Steinberg
Victor Shih*
Affiliation:
University of California, San Diego
David A. Steinberg*
Affiliation:
University of Oregon
*
Victor Shih, School of International Relations and Pacific Studies, University of California, San Diego, 9500 Gilman Drive, La Jolla, CA 92093-0519
David A. Steinberg, University of Oregon, Department of Political Science, 1284University of Oregon, Eugene, OR 97403, email: blogs.uoregon.edu/davidsteinberg/
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Abstract

Abstract. Why did most central banks continue to purchase dollar reserves during the 2000s even though they suffered mounting financial losses as a result of this policy? This paper argues that domestic political considerations determine whether policy makers accumulate or dump the reserve currency. We hypothesize that central bank independence decreases support for the dollar because independent central banks reduce the political clout of exporters and increase the salience of financial performance. This argument is tested using data on countries' holdings of US Treasury securities between 2000 and 2008. The statistical results indicate that countries with independent central banks were more likely to sell and less likely to purchase US treasuries. Our findings suggest that a complete understanding of the international dollar standard requires greater attention to domestic politics and how political institutions influence the balance of power between competing interest groups.

Résumé. Pourquoi est-ce que la plupart des banques centrales ont continué à acheter des réserves de dollars au cours des années 2000, même quand ils souffraient des pertes financières en raison de cette politique? Cet article soutient que des considérations de politiques nationale déterminent si les responsables des politiques décident d'accumuler ou de vider leurs monnaie de réserve. Nous émettons l'hypothèse que l'indépendance de la banque centrale décourage le soutien pour le dollar, car les banques centrales indépendantes réduise la puissance politique des exportateurs et augmente l'importance de la performance financière. Cet argument est testé en utilisant des données sur la quantité de titres du Trésor américain possédée par pays entre 2000 et 2008. Les résultats statistiques démontrent que les pays avec des banques centrales indépendantes étaient plus susceptibles de vendre et moins susceptibles d'acheter des obligations du Trésor américain. Nos résultats suggèrent qu'une compréhension complète de l'étalon dollar international exige une plus grande attention à la politique nationale, et comment les institutions politiques influencent l'équilibre du pouvoir entre les groupes d'intérêts concurrents.

Type
Research Article
Information
Canadian Journal of Political Science/Revue canadienne de science politique , Volume 45 , Issue 4 , December 2012 , pp. 855 - 880
Copyright
Copyright © Canadian Political Science Association 2012

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