Fighting financial imbalances through (independent) monetary policy: The dampening effect of the financial channel of the exchange rate

Abstract: The primary aim of this article is to explore the relationship between monetary policy and financial imbalances in 12 emerging countries, using credit to the private non-financial sector as a percentage of GDP as an indicator of financial imbalances. Considering the specific context of emerging countries, which are highly sensitive to external factors such as U.S. monetary policy, we identify local monetary policy shocks that are independent of U.S. monetary policy and empirically show that tightening interest rates reduces credit growth. However, we contrast this result by demonstrating that this effect can be weakened by the “financial channel of the exchange rate”. In this context, we further investigate the relevance of an additional tool that may work through the same channel. Specifically, we examine the role of FX interventions using an instrumental approach, considering the motives for international reserves accumulation as an instrument. Our results, obtained through local projections, show that FX interventions mitigate both exchange rate fluctuations and credit growth, suggesting complementarity with monetary policy.

Keywords: Financial stability; Monetary policy; FX intervention; International reserves; Emerging countries.

CBDC design and stablecoin demand: Evidence from central bank communications. With Florian Kraus (University of Bordeaux)

Abstract: This article investigates the impact of central bank communication on central bank digital currencies (CBDCs) on stablecoin demand, focusing on 10 stablecoins pegged to the U.S. dollar. We use the CBDC-BERT approach proposed by Zafar (2025) to construct sentence-level measures of CBDC communication, capturing both stance and sentiment and allowing us to explore heterogeneity across CBDC designs. Importantly, this framework enables us to extend the analysis to the recent period, including the renewed wave of stablecoin adoption since 2024. Using local projections, we show that positive CBDC-related communication leads to a decline in stablecoin demand of around 4% after 30 days. This effect is primarily driven by communication related to retail CBDCs compared with wholesale CBDCs. Further analysis reveals that stablecoin markets respond particularly strongly to communication by the ECB, while the impact of central bank communication in emerging economies remains limited.

Keywords: Central bank communication; Central bank digital currencies; Stablecoins; BERT model.

Monetary autonomy, the trilemma and international reserves in emerging countries

Abstract: This paper investigates the drivers of monetary policy autonomy by analysing the validity of the trilemma and the role of international reserves for 23 emerging countries over the period 1990 - 2018. Using the Taylor rule, our findings show that the exchange rate regime and the level of capital controls still matter to explain the degree of monetary autonomy and the ability of emerging countries to freely achieve their monetary policy objectives. We also find evidence that the accumulation of international reserves allows us to preserve monetary autonomy and to relax the constraints of the trilemma.

Keywords: Exchange rate regime; International reserves; Emerging countries; Trilemma; Quadrilemma.