The US Dollar is the dominant currency in global finance and is of immense importance to American allies in the middle east who conduct majority of their trade transactions in dollars. In November 2023, Saudi Arabia signed a large Bilateral Currency Swap (BCS) agreement with China. While this might be seen this as a risky upheaval to the prevailing regime, the financial markets perceived this positively when measured using Sovereign Credit Default Swaps (CDS). This study reveals that five days before the deal was even official, Saudi CDS premiums decreased by 6%, a massive shift compared to historical norms. The results are also significant statistically when compared against the control (Australia). This shows that currency diversification isn’t just about technicalities; it enables tail-risk reduction
in VBA Journaal door Keshav Bhatt