“A long-standing puzzle in international finance is the durability of the dollar’s share of foreign exchange reserves – which remains above 60 percent, while the weight of the US economy in global output has fallen to less than a quarter,” according to the BIS report.
Additionally, the currency mismatch between the emerging markets and the U.S. could continue to deteriorate as many expect the Federal Reserve tighten its monetary policy. [Global Currency War Leaves U.S. Dollar ETFs On Top]
“The corresponding tightening of financial conditions could only worsen once interest rates in the US normalise,” Borio added.
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Max Chen contributed to this article.