Dollar Dominance in FX Trading

• 成果类型: Article; Early Access
• 署名作者: Somogyi, Fabricius
• 署名单位: Northeastern University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2024.07656
• 发表日期: 2026
• 关键词: dollar dominance; FX volume; Price impact; Vehicle currency

摘要

Over 85% of all foreign exchange (FX) transactions involve the U.S. dollar, whereas the United States accounts for a much smaller fraction of global economic activity. My paper attributes the dominance of the dollar in FX trading to strategic avoidance of price impact. Using a novel identification strategy, I show that, on average, 13% of the volume in dollar pairs arises from using the dollar as a vehicle currency to indirectly exchange two nondollar currencies. To rationalise this result, I derive three model-based conditions for dollar dominance. I empirically test these conditions and provide evidence consistent with the theoretical framework.