The centrality of the United States in the global financial system is taken for granted, but its response to recent political and epidemiological events has suggested that other industrialized countries now hold a comparable position. In this paper, we first extend the Rapach, Strauss, and Zhou (2013) study on the leading role of the U.S. in the international markets and document a gradual decrease in the dominant role of the U.S. in the international markets by the end of 2020. Next, using minute-by-minute data from 2012 to 2020 on the financial performance of country-specific exchange-traded funds, we construct daily snapshots of the global financial network and analyze them for the centrality and connectedness of each country in our sample. We find evidence that the U.S. was central to the global financial system into 2018, but that the U.S.-China trade war of 2018–2019 diminished its centrality, and the Covid-19 outbreak of 2019–2020 increased the centrality of China. These indicators may be the first signals that the global financial system is moving from a unipolar to a bipolar (or multipolar) world.
SAFE Working Paper No. 304