Dollar and Exports

Also published in the Review of Financial Studies

BIS Working Papers  |  No 819  | 
01 April 2020


A broad appreciation of the dollar dampens international trade by weighing on the operation of credit-intensive global value chains (GVCs). 


We are accustomed to drawing an automatic link between exchange rates and export performance through the textbook trade competitiveness channel according to which a strong US dollar boosts exports of non-US economies. Paradoxically, a strong dollar may actually serve to dampen trade volumes, rather than stimulate them.

A detailed empirical analysis using 4.6 million observations of export shipments by product category shows that when dollar credit conditions tighten, firms that rely more on wholesale dollar-funded banks suffer a greater contraction in exports. This is due to greater stringency in access to working capital to sustain GVCs. 


First, following an appreciation of the dollar, banks with high reliance on dollar wholesale funding reduce supply of dollar credit more relative to banks with low wholesale dollar funding exposures.

Second, firms that are more exposed to wholesale dollar-funded banks (and hence suffer a decline in credit supply), experience a slowdown in exports, controlling for non-credit factors.

Third, the exports of firms that have higher working capital needs and are part of longer production chains are hit more by the dollar appreciation.

Taken together, the findings point to the trade suppressing effect of dollar appreciation working through the global bank credit channel. Our findings are consistent with the conventional trade competitiveness channel in that we also observe the positive effect on exports deriving from the trade competitiveness channel, but only in those firms that borrow from banks that are less exposed to dollar wholesale funding, or are not exposed at all.


The strength of the U.S. dollar has attributes of a barometer of dollar credit conditions, with a stronger dollar associated with tighter dollar credit conditions. We find that following dollar appreciation, exporters that are more reliant on dollar-funded bank credit su¤er a greater decline in credit and slowdown in exports, including those exporting to the United States. Our findings shed light on the role of the U.S. dollar in the interaction between financial globalization and international trade and show a novel channel of exchange rate transmission that goes in the opposite direction to the competitiveness channel.

JEL codes: F40, F65

Keywords: global factors, risk taking channel, non-core bank funding, working capital, global value chains