Discussion paper

DP15170 External Balance Sheets and the COVID-19 Crisis

At the onset of the COVID-19 economic crisis, as in other crisis episodes, the flight to safety was accompanied by a rapid appreciation of "safe haven" currencies. We quantify currency-induced balance sheet effects for total external positions as well as for individual asset classes using new data on the currency composition of cross-border assets for 48 countries for the first quarter as well as full year 2020. For the first quarter of 2020 we also conduct the stock-flow reconciliation of net international investment positions to measure overall valuation effects. We show that for many countries currency-induced valuation gains mitigated losses that resulted from declining asset prices in the first quarter of 2020. Moreover, for countries with excess capital outflows during this period, the impacts on external balance sheet positions were mitigated by valuation gains. This is because, in contrast with past financial crises, many emerging markets did not experience negative external balance sheet effects from their currency depreciation, partly due to currency-induced valuation gains on equity positions offsetting losses on debt positions, partly due to reduced currency mismatch on their external debt positions.


Hale, G and L Juvenal (2020), ‘DP15170 External Balance Sheets and the COVID-19 Crisis‘, CEPR Discussion Paper No. 15170. CEPR Press, Paris & London. https://cepr.org/publications/dp15170