Safe Assets in the Global Economy

Joanna Bogołębska is an associate professor in the Department of International Business and Trade, University of Lodz, Poland.Ewa Feder‑Sempach is an assistant professor in the Department of International Finance and Investment, University of Lodz, Poland.Ewa Stawasz‑Grabowska is an assistant professor in the Department of International Finance and Investment, University of Lodz, Poland.

"Our understanding of modern finance begins with the concept of safe assets. One of the first things we teach students is how to discount cash flows using the risk-free rate. We then complicate matters with risk premia, but the safe return is the foundation. And safe assets are not simply an introductory concept to be explained and then relegated to the margins. The role of the dollar as the global currency and the world’s safe asset is under increasing threat. This book is a timely discussion of the role of safe assets in the international financial system, balancing theory and evidence and always with a focus on contemporary policy and business implications." — Ian W. Marsh, Professor of Finance, Bayes Business School, City, University of London

• Introduction Chapter 1 Concept, definitions and functions of safe assets1.1 The overall characteristics of a safe asset 1.1.1 Definitions, key features and functions1.1.2 The attributes of a safe asset 1.1.3 Safe assets as a financial instrument and money1.2 Safe assets vs safe-haven assets1.2.1 The characteristics of safe havens1.2.1.1 Gold as a safe haven1.2.1.2 Safe-haven currencies1.2.1.3. Other categories of safe havens1.2.2 Safe-haven assets and asset pricing theoryReferencesChapter 2 The supply of safe assets 2.1 Determining safe asset supply in an international context 2.1.1 Global vs regional providers of safe assets2.1.2 The exorbitant privilege concept2.1.3 Characteristics of a global safe asset provider2.2 The structure of the supply of safe assets2.2.1 Safe asset provision from a historical perspective2.2.2 Contemporary tendencies in the supply of safe assets2.3 The role of debt in safe asset creation2.3.1 Public vs private debt in the provision of safe assets2.3.2 The special role of public debt as a source of safe asset provisionChapter 3 The demand for safe assets 3.1 Demand for safety3.1.1 Commercial banks’ demand for safe assets3.1.2 Motives behind holding safe assets3.2 Central banks’ demand for safe assets3.2.1 Foreign exchange reserves in the portfolios of central banks3.2.2 Gold in central banks’ portfolios3.3 Sovereign wealth funds’ demand for safe assets3.4 Other market participants’ demand for safe assets3.5 The role of the foreign sector in the ownership of domestic safe assets – the case of a global provider (USA)Chapter 4 Safe asset shortages and the implications for financial stability. In search of new sources of supply 4.1 Financial stability and its link with the safe assets market 4.2 Imbalances in the demand and supply of safe assets 4.2.1 Causes of the demand-supply mismatch of safe assets4.2.2 Consequences of the demand-supply mismatch for financial stability4.3 The evolution of public debt levels of safe asset supplier countries 4.4 Mechanisms of safe asset creation and the stability of the international monetary system 4.5 Alternative sources of safe asset supply 4.6 The EMU 4.6.1 Fiscal frameworks within the EMU and its evolution4.6.2 A common safe asset for the euro area. An overview of proposals4.6.3 The role of supranational debt in safe assets creation. The case of EU4.7 The role of EMEs in producing safe assets4.7.1 The rising role of EMEs in the global economy4.7.2 China4.7.3 India4.8 Evolution of the forms of money and the supply of safe assets ConclusionGlossary