Dash for Dollars

Abstract

We provide evidence on the special status of the US dollar in the international monetary and financial system by studying the disruption in corporate debt markets during the Covid-19 outbreak. Within-firm variation of corporate bond spreads from a new multi-country data set shows that US dollar-denominated bonds experienced larger increases in spreads relative to non-dollar bonds. The patterns we uncover suggest a ‘dash for dollars’, in which investors in need of cash dollars sold their dollar-denominated assets first, with a consequent impact on prices. We then exploit a rich transaction-level regulatory data set to link these dynamics to the dominant role of the US dollar in the international monetary and financial system. Our results suggest that investors needed dollar cash in order to meet immediate dollar obligations.