Global money and the balance of payments: How do global banks drive cross-country US dollar credit conditions?

The US dollar is the most widely used cross-border means of payment. Countries require access to US dollars to pay for most of their balance-of-payments-related transactions, and restricted access to them can constrain their growth possibilities. Yet, the literature about the mechanisms behind the creation and distribution of US dollars across borders is fragmented. Based on the endogenous money and Minskyan perspectives, this paper theoretically explores how internationally accepted US dollars are created through global banks’ credit operations. The credit conditions of these operations ultimately influence the countries’ costs and ability to participate in cross-border transactions. In particular, this paper explores how global banks determine cross-country US dollar credit conditions based on two main factors: their general pricing decisions, determined by their desired balance-sheet structures, and their assessments of the borrowers’ creditworthiness, which are based on their expectations regarding borrowers’ future access to US dollars. Fluctuations of these factors can act as exogenous sources of pressure for the balance of payments of countries across the world.