IDEAS home Printed from https://ideas.repec.org/a/spr/snbeco/v3y2023i1d10.1007_s43546-022-00410-3.html
   My bibliography  Save this article

An analysis of transnational transfer of wealth through cross-border financial transactions

Author

Listed:
  • Ahmed Mehedi Nizam

    (The Central Bank of Bangladesh)

Abstract

Cross-border financial transactions in fiat currencies facilitate transfer of wealth in real terms from the exporting to the importing country. The importing country gets the ownership of real assets and/or consumable goods/services, while the exporting one obtains some hard currencies with no intrinsic value, which serve the purpose of store of value and also represent purchasing power in the international market. Apart from export and import, all other transactions in current and capital account also add to the process of such transfer of wealth as mentioned above. Considering all such cross-border transactions along with the role of a country’s currency as a global reserve currency, here we algebraically quantify the extent of net non-monetary wealth that a particular country has transferred so far to the rest of the world in exchange of some fiat hard currencies. Then we use the algebraic formulation stated above to empirically calculate the amount of net real wealth transferred to (from) some major economies from (to) the rest of the world stemming from cross-border financial transactions and analyze their long term and short term dynamics using Vector Error Correction Model (VECM). Wealth as defined above along with its long term trends should allow countries rethink their hoarding pattern of foreign currencies as well as their trading behavior with the rest of the world.

Suggested Citation

  • Ahmed Mehedi Nizam, 2023. "An analysis of transnational transfer of wealth through cross-border financial transactions," SN Business & Economics, Springer, vol. 3(1), pages 1-31, January.
    • Handle: RePEc:spr:snbeco:v:3:y:2023:i:1:d:10.1007_s43546-022-00410-3
    DOI: 10.1007/s43546-022-00410-3
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s43546-022-00410-3
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s43546-022-00410-3?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Matteo Maggiori & Brent Neiman & Jesse Schreger, 2020. "International Currencies and Capital Allocation," Journal of Political Economy, University of Chicago Press, vol. 128(6), pages 2019-2066.
    2. Goldberg, Linda S. & Tille, Cédric, 2008. "Vehicle currency use in international trade," Journal of International Economics, Elsevier, vol. 76(2), pages 177-192, December.
    3. Niklas Amberg & Thomas Jansson & Mathias Klein & Anna Rogantini Picco, 2022. "Five Facts about the Distributional Income Effects of Monetary Policy Shocks," American Economic Review: Insights, American Economic Association, vol. 4(3), pages 289-304, September.
    4. Ize, Alain & Yeyati, Eduardo Levy, 2003. "Financial dollarization," Journal of International Economics, Elsevier, vol. 59(2), pages 323-347, March.
    5. Adrien Auclert, 2019. "Monetary Policy and the Redistribution Channel," American Economic Review, American Economic Association, vol. 109(6), pages 2333-2367, June.
    6. Matthias Doepke & Martin Schneider, 2006. "Inflation and the Redistribution of Nominal Wealth," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1069-1097, December.
    7. Gita Gopinath & Jeremy C Stein, 2021. "Banking, Trade, and the Making of a Dominant Currency," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(2), pages 783-830.
    8. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    9. Eduardo Borensztein & Andrew Berg, 2000. "Full Dollarization; The Pros and Cons," IMF Economic Issues 24, International Monetary Fund.
    10. Hohberger, Stefan & Priftis, Romanos & Vogel, Lukas, 2020. "The distributional effects of conventional monetary policy and quantitative easing: Evidence from an estimated DSGE model," Journal of Banking & Finance, Elsevier, vol. 113(C).
    11. Ogawa, Eiji & Sasaki, Yuri Nagataki, 1998. "Inertia in the key currency," Japan and the World Economy, Elsevier, vol. 10(4), pages 421-439, October.
    12. Seth B. Carpenter & William M. Rodgers III, 2004. "The disparate labor market impacts of monetary policy," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 23(4), pages 813-830.
    13. Krugman, Paul, 1980. "Vehicle Currencies and the Structure of International Exchange," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(3), pages 513-526, August.
    14. Coibion, Olivier & Gorodnichenko, Yuriy & Kueng, Lorenz & Silvia, John, 2017. "Innocent Bystanders? Monetary policy and inequality," Journal of Monetary Economics, Elsevier, vol. 88(C), pages 70-89.
    15. Erosa, Andres & Ventura, Gustavo, 2002. "On inflation as a regressive consumption tax," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 761-795, May.
    16. Mr. Guillermo Calvo & Mr. Carlos A. Végh Gramont, 1992. "Currency Substitution in Developing Countries: An Introduction," IMF Working Papers 1992/040, International Monetary Fund.
    17. Anastasios Evgenidis & Apostolos Fasianos, 2021. "Unconventional Monetary Policy and Wealth Inequalities in Great Britain," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 83(1), pages 115-175, February.
    18. Barry Eichengreen & Marc Flandreau, 2012. "The Federal Reserve, the Bank of England, and the Rise of the Dollar as an International Currency, 1914–1939," Open Economies Review, Springer, vol. 23(1), pages 57-87, February.
    19. Marc Hofstetter & Jose Ignacio Lopez & Miguel Urrutia, 2018. "Limits to Foreign Exchange Net Open Positions and Capital Requirements in Emerging Economies," Documentos CEDE 15995, Universidad de los Andes, Facultad de Economía, CEDE.
    20. Gita Gopinath, 2015. "The International Price System," NBER Working Papers 21646, National Bureau of Economic Research, Inc.
    21. Irwin, Douglas A., 2013. "The Nixon shock after forty years: the import surcharge revisited," World Trade Review, Cambridge University Press, vol. 12(1), pages 29-56, January.
    22. Matteo Maggiori & Brent Neiman & Jesse Schreger, 2019. "The Rise of the Dollar and Fall of the Euro as International Currencies," AEA Papers and Proceedings, American Economic Association, vol. 109, pages 521-526, May.
    23. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 15(30), pages 08-45.
    24. Mr. Eduardo Borensztein & Mr. Andrew Berg, 2000. "The Pros and Cons of Full Dollarization," IMF Working Papers 2000/050, International Monetary Fund.
    25. Karl-Friedrich Israel & Sophia Latsos, 2020. "The impact of (un)conventional expansionary monetary policy on income inequality – lessons from Japan," Applied Economics, Taylor & Francis Journals, vol. 52(40), pages 4403-4420, August.
    26. Mr. Eduardo Borensztein & Mr. Andrew Berg, 2000. "Full Dollarization: The Pros and Cons," IMF Economic Issues 2000/004, International Monetary Fund.
    27. George Selgin, 2003. "Adaptive Learning and the Transition to Fiat Money," Economic Journal, Royal Economic Society, vol. 113(484), pages 147-165, January.
    28. Pedro S. Amaral, 2017. "Monetary Policy and Inequality," Economic Commentary, Federal Reserve Bank of Cleveland, issue January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nizam, Ahmed Mehedi, 2021. "Redistribution of wealth through cross border financial transactions: A closer look," MPRA Paper 109374, University Library of Munich, Germany.
    2. Tao Liu & Dong Lu & Liang Wang, 2023. "Hegemony or Harmony? A Unified Framework for the International Monetary System," Working Papers 202305, University of Hawaii at Manoa, Department of Economics.
    3. Kyriakos C. Neanidis & Christos S. Savva, 2006. "The Effects of Uncertainty on Currency Substitution and Inflation: Evidence from Emerging Economies," Economics Discussion Paper Series 0609, Economics, The University of Manchester.
    4. Mumtaz, Haroon & Theophilopoulou, Angeliki, 2020. "Monetary policy and wealth inequality over the great recession in the UK. An empirical analysis," European Economic Review, Elsevier, vol. 130(C).
    5. Merrino, Serena, 2022. "Monetary policy and wage inequality in South Africa," Emerging Markets Review, Elsevier, vol. 53(C).
    6. Gokan, Yoichi & Turnovsky, Stephen J., 2023. "Taylor rules: Consequences for wealth and income inequality," Journal of Macroeconomics, Elsevier, vol. 77(C).
    7. Lindokuhle Talent Zungu & Lorraine Greyling, 2022. "Exploring the Dynamic Shock of Unconventional Monetary Policy Channels on Income Inequality: A Panel VAR Approach," Social Sciences, MDPI, vol. 11(8), pages 1-22, August.
    8. Emter, Lorenz & McQuade, Peter & Pradhan, Swapan-Kumar & Schmitz, Martin, 2024. "Determinants of currency choice in cross-border bank loans," Working Paper Series 2918, European Central Bank.
    9. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2014. "Addicted to Dollars," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 1-51, May.
    10. Michele Lenza & Jiri Slacalek, 2024. "How does monetary policy affect income and wealth inequality? Evidence from quantitative easing in the euro area," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 39(5), pages 746-765, August.
    11. Cong, Lin William & Mayer, Simon, 2022. "The Coming Battle of Digital Currencies," Applied Economics and Policy Working Paper Series 320020, Cornell University, Department of Applied Economics and Management.
    12. Sergey Narkevich & Pavel Trunin, 2012. "Reserve Currencies: Factors of Evolution and their Role in the World Economy," Research Paper Series, Gaidar Institute for Economic Policy, issue 162P.
    13. Metin-Özcan, Kıvılcım & Us, Vuslat, 2007. "Dedollarization in Turkey after decades of dollarization: A myth or reality?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 385(1), pages 292-306.
    14. Goodness C. Aye & Matthew W. Clance & Rangan Gupta, 2019. "The effectiveness of monetary and fiscal policy shocks on U.S. inequality: the role of uncertainty," Quality & Quantity: International Journal of Methodology, Springer, vol. 53(1), pages 283-295, January.
    15. Andrea Colciago & Anna Samarina & Jakob de Haan, 2019. "Central Bank Policies And Income And Wealth Inequality: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 33(4), pages 1199-1231, September.
    16. Mikołaj Raczyński, 2022. "Monetary policy and economic inequality: a literature review," Bank i Kredyt, Narodowy Bank Polski, vol. 53(2), pages 231-278.
    17. Benigno, Pierpaolo & Schilling, Linda M. & Uhlig, Harald, 2022. "Cryptocurrencies, currency competition, and the impossible trinity," Journal of International Economics, Elsevier, vol. 136(C).
    18. Drenik, Andrés & Perez, Diego J., 2021. "Domestic price dollarization in emerging economies," Journal of Monetary Economics, Elsevier, vol. 122(C), pages 38-55.
    19. Rösl, Gerhard & Seitz, Franz, 2024. "Uncertainty, politics, and crises: The case for cash," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 5(3).
    20. Christopher Clayton & Andreas Schaab & Xavier Jaravel, 2019. "Heterogeneous Price Rigidities and Monetary Policy," 2019 Meeting Papers 1480, Society for Economic Dynamics.

    More about this item

    Keywords

    Cross border trade; Wealth redistribution; Hard currencies;
    All these keywords.

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:snbeco:v:3:y:2023:i:1:d:10.1007_s43546-022-00410-3. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.