Financial exchange rates and international currency exposures. Working Paper 13433, National Bureau of Economic Research

In order to gain a better empirical understanding of the international financial implications of currency movements, we construct a database of international currency exposures for a large panel of countries over 1990-2004. We show that trade-weighted exchange rate indices are in-sufficient to understand the financial impact of currency movements and that our currency measures have high explanatory power for the valua-tion term in net foreign asset dynamics. Exchange rate valuation shocks are sizable, not quickly reversed and may entail substantial wealth re-distributions. Further, we show that many developing countries have substantially reduced their negative foreign currency positions over the last decade