Template-Type: ReDIF-Paper 1.0
Author-Name: Lorenz Emter
Author-X-Name-First: Lorenz
Author-X-Name-Last: Emter
Author-Name: Peter McQuade
Author-X-Name-First: Peter
Author-X-Name-Last: McQuade
Author-Name: Swapan-Kumar Pradhan
Author-X-Name-First: Swapan-Kumar
Author-X-Name-Last: Pradhan
Author-Name: Martin Schmitz
Author-X-Name-First: Martin
Author-X-Name-Last: Schmitz
Title: Determinants of currency choice in cross-border bank loans
Abstract: This paper provides insights into the determinants of currency choice in cross-border bank lending, such as bilateral distance, financial and trade linkages to issuer countries of major currencies, and invoicing currency patterns. Cross-border bank lending in US dollars, and particularly in euro, is highly concentrated in a small number of countries. The UK is central in the international network of loans denominated in euro, although there are tentative signs that this role has diminished for lending to non-banks since Brexit. Offshore financial centres are pivotal for US dollars loans, reflecting, in particular, lending to non-bank financial intermediaries in the Cayman Islands, possibly as a result of regulatory and tax optimisation strategies. The empirical analysis suggests that euro-denominated loans face the "tyranny of distance", in line with predictions of gravity models of trade, in contrast to US dollar loans. Complementarities between trade invoicing and bank lending are found for both the euro and the US dollar.
Creation-Date: 2024-05
File-URL: https://www.bis.org/publ/work1184.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1184.htm
File-Format: text/html
Number: 1184
Keywords: dominant currency paradigm, currency denomination, cross-border banking, gravity
Classification-JEL: F31, F33, F34, F36, G21
Handle: RePEc:bis:biswps:1184