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This edition was written by Sarah Ahmad, Chase Parry, Andrew Rosin, and Louise Sheiner.
Menzie D. Chinn of the University of Wisconsin – Madison, Jeffrey A. Frankel of Harvard University, and Hiro Ito of Portland State University find that U.S. sanctions imposed between 1999 and 2022 reduced central banks’ dollar reserves in targeted countries and increased holdings of other currencies and gold. Sanctions imposed by other countries, by contrast, had little measurable impact. These effects held in both periods of relative global financial stability and episodes of stress. The authors also find that uncertainty around U.S. trade policy, which was particularly high during the first Trump presidency, produced a substantial shift in foreign reserves towards non-dollar assets. By contrast, U.S. tariffs themselves appear to have had economically meaningful but statistically imprecise effects on reserve composition.
Sudheer Chava of the Georgia Institute of Technology and co-authors use textual analysis of quarterly earnings calls to develop a new firm-level measure of input and output price changes. They find that input prices rise frequently—about once every seven months at the median firm—but fall only once every 30 months, with price changes reflecting both aggregate and firm-specific factors. Stock prices drop, on average, when firms report rising input costs, with the sharpest declines (about −1.15%) following calls in the top tercile of mentions of input cost increase. Firms also adjust their pricing: a 10% input cost shock raises output prices by about 7% in the same quarter, though the degree of pass-through weakens over time.
Akcan S. Balkir of the University of California, Berkeley, and co-authors match members of the Forbes 400 to their individual, business, estate, and gift tax returns to calculate effective tax rates on “economic income,” which includes all labor and capital income, including undistributed business profits. This group—the top 0.0002% of U.S. households by wealth—paid an average effective tax rate of 23.8% between 2018 and 2020, down from around 30% between 2014 and 2017, while the rate for the U.S. population as a whole remained stable at approximately 30%. The authors attribute most of the decline in the tax rate for the Forbes 400 to provisions of the 2017 Tax Cuts and Jobs Act that narrowed the individual income tax base for pass-through businesses, creating a wedge between book profits and taxable income.
“Stablecoins are the latest example of private sector-led innovation in payments. The original use of stablecoins was to facilitate crypto trading. Crypto-asset prices can be volatile and as with any financial market, there is a need for traders to move out of relatively risky positions into safer ones with a stable asset price. As the stablecoin market matured, firms found that the properties of stablecoins using distributed ledger technology— including 24/7 availability, fast transferability, and their freely circulating nature —could be attractive for other use cases as well. That includes providing a means to access and hold U.S. dollars, particularly in countries with high inflation or without easy or affordable access to dollar cash or banking services. In fact, I believe that stablecoins have the potential to maintain and extend the role of the dollar internationally. Stablecoins also have the potential to improve retail and cross-border payments," says Christopher J. Waller, Governor of the Federal Reserve Board.
“I spoke about the maturing stablecoin market in February of this year, and, at the time, I noted the need for a regulatory regime for stablecoins in the U.S to provide regulatory clarity and reduce regulatory fragmentation for market participants. Last month, the GENIUS Act became the first major crypto-asset legislation to become law. This was an important step for the payment stablecoin market and could help stablecoins reach their full potential. Stablecoins, like card payments, are a private sector-driven innovation. And, like card payments, we see connections to the traditional payments, clearing, and settlement ecosystem.”
About the Hutchins Center on Fiscal and Monetary Policy at Brookings
