Ruth Judson on Chasing Dollars Around the World
Macro Musings with David Beckworth Podcast Recap
Published:
Duration: 50 min
Guests: Ruth Judson
Summary
Ruth Judson discusses her extensive career at the Federal Reserve, focusing on global capital flows, currency demand, and the implications of a cashless society. The episode provides insights into the dynamics of U.S. currency both domestically and internationally.
What Happened
Ruth Judson, a seasoned monetary economist and economic historian, began her career at the Federal Reserve in 1994, working on monetary aggregates and models of money demand. Her early work involved daily open market operations, and she developed a strong belief in automation for handling large datasets.
In 2011, Judson transitioned to the International Finance division, where she worked extensively with Treasury International Capital (TIC) data. This data is pivotal for tracking cross-border banking and securities transactions, revealing foreign holdings of U.S. Treasuries. However, it often reflects holdings from intermediary countries, like Belgium, rather than the actual end holders.
Judson highlights the COVID-19 pandemic as a period of significant currency demand spikes, driven by both foreign demand and domestic precautionary measures. Banks notably increased vault cash during this time, reflecting the heightened demand for currency.
The role of currency in the Federal Reserve's balance sheet is considered autonomous, similar to the Treasury General Account. The TGA can experience large fluctuations, affecting reserve levels, which is an important factor in the ample reserve system currently in place.
Judson remarks on the strong international demand for larger currency denominations, which may be related to underground economic activities. She contrasts this with Sweden's move toward a cashless society, which has faced challenges related to inclusivity and emergency preparedness.
The discussion extends to central bank digital currencies (CBDCs), with China's CBDC noted as the most successful to date, though overall uptake remains low. European regulators express concern over dollar-based stablecoins potentially undermining monetary sovereignty.
Judson also recounts efforts to track U.S. dollars overseas, involving the Secret Service, Treasury, and New York Fed. This project, which aimed to measure the extent of U.S. currency abroad, produced several reports before concluding in 2007.
Finally, the episode examines the role of stablecoins in cross-border payments, particularly in developing economies where they may substitute physical cash. Dollar-denominated stablecoins dominate the market, and there are significant regulatory considerations, as illustrated by Tether's operations outside U.S. regulations.
Key Insights
- Ruth Judson's tenure at the Federal Reserve since 1994 saw a transition from monetary aggregates to international finance, reflecting broader shifts in monetary policy focus towards interest rates.
- Currency demand during the COVID-19 pandemic was driven by foreign demand and domestic precautionary measures, leading to increased vault cash by banks to accommodate this spike.
- Despite large Treasury issuances, the foreign demand for U.S. Treasuries remains solid, although the share held by foreign entities has decreased over time.
- Dollar-denominated stablecoins dominate the market, comprising 90-99% of all stablecoins, and they are increasingly used for cross-border payments, especially in developing regions.