Safe assets constitute an essential component of the contemporary, international financial system and are vital to its stability. As they are perceived as risk-free assets, they are a special type of financial instrument. Although the vast majority of safe assets are issued by governments, due to the increasing interdependence of economies, resulting from the liberalisation of capital flows, financial openness and the ineffectiveness of the international monetary system, issues relating to their significance, creation and allocation are global. This book combines theoretical threads by systematising the concept and characteristics of safe assets against the background of alternative financial instruments with empirical analyses that present trends in shaping demand, supply, price conditions and various interdependencies in the financial markets. It shows the position and role of safe assets in the global financial sector, in the context of ongoing challenges, such as the evolution of forms of money and the processes of currency competition, the outbreak of financial and economic crises, the accumulation of foreign exchange reserves, financial innovations, the scale of securitisation and monetary integration. Although safe assets are not a new category of financial assets, they are inherently connected with the evolution of money. Thus, this book examines the determinants of their creation, motives of holding and the consequences of a shortage – all within the changing nature of the international financial system. Historical, political and institutional backgrounds are taken into account. This book will appeal to researchers, scholars and advanced students of macroeconomics, international finance and economics, investment analysis, financial economics and econometrics.
Introduction Chapter 1 Concept, definitions and functions of safe assets 1.1 The overall characteristics of a safe asset 1.1.1 Definitions, key features and functions 1.1.2 The attributes of a safe asset 1.1.3 Safe assets as a financial instrument and money 1.2 Safe assets vs safe-haven assets 1.2.1 The characteristics of safe havens 1.2.1.1 Gold as a safe haven 1.2.1.2 Safe-haven currencies 1.2.1.3. Other categories of safe havens 1.2.2 Safe-haven assets and asset pricing theory References Chapter 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 assets 2.1.2 The exorbitant privilege concept 2.1.3 Characteristics of a global safe asset provider 2.2 The structure of the supply of safe assets 2.2.1 Safe asset provision from a historical perspective 2.2.2 Contemporary tendencies in the supply of safe assets 2.3 The role of debt in safe asset creation 2.3.1 Public vs private debt in the provision of safe assets 2.3.2 The special role of public debt as a source of safe asset provision Chapter 3 The demand for safe assets 3.1 Demand for safety 3.1.1 Commercial banks’ demand for safe assets 3.1.2 Motives behind holding safe assets 3.2 Central banks’ demand for safe assets 3.2.1 Foreign exchange reserves in the portfolios of central banks 3.2.2 Gold in central banks’ portfolios 3.3 Sovereign wealth funds’ demand for safe assets 3.4 Other market participants’ demand for safe assets 3.5 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 assets 4.2.2 Consequences of the demand-supply mismatch for financial stability 4.3 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 evolution 4.6.2 A common safe asset for the euro area. An overview of proposals 4.6.3 The role of supranational debt in safe assets creation. The case of EU 4.7 The role of EMEs in producing safe assets 4.7.1 The rising role of EMEs in the global economy 4.7.2 China 4.7.3 India 4.8 Evolution of the forms of money and the supply of safe assets Conclusion Glossary
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.
