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When is a Global Currency Optimal?

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  • Mark David Witte

Abstract

The purpose of this paper is to examine what factors make an individual, exporting firm choose to denominate its price(s) in the same currency for multiple markets in different countries. The unique model herein maintains an endogenous frequency of price adjustment, price discrimination and currency of denomination. The representative firm is likely to choose a global price (one price in one currency for all countries) based mostly on macro economic and industry-specific characteristics. Exchange rate transaction costs, exchange rate volatility and market size consistently impact the optimality of the use of a global currency.

Suggested Citation

  • Mark David Witte, 2009. "When is a Global Currency Optimal?," Global Economic Review, Taylor & Francis Journals, vol. 38(1), pages 1-11.
    • Handle: RePEc:taf:glecrv:v:38:y:2009:i:1:p:1-11
    DOI: 10.1080/12265080802692639
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    References listed on IDEAS

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    1. Black, Stanley W., 1991. "Transactions costs and vehicle currencies," Journal of International Money and Finance, Elsevier, vol. 10(4), pages 512-526, December.
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    5. Taylor, John B., 2000. "Low inflation, pass-through, and the pricing power of firms," European Economic Review, Elsevier, vol. 44(7), pages 1389-1408, June.
    6. Goldberg, Linda & Tille, Cédric, 2009. "Macroeconomic interdependence and the international role of the dollar," Journal of Monetary Economics, Elsevier, vol. 56(7), pages 990-1003, October.
    7. Friberg, Richard, 1998. "In which currency should exporters set their prices?," Journal of International Economics, Elsevier, vol. 45(1), pages 59-76, June.
    8. Fukuda, Shin-ichi & Ono, Masanori, 2006. "On the determinants of exporters' currency pricing: History vs. expectations," Journal of the Japanese and International Economies, Elsevier, vol. 20(4), pages 548-568, December.
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    Cited by:

    1. Mark David Witte, 2010. "Currency Invoicing: The Role of 'Herding' and Exchange Rate Volatility," International Economic Journal, Taylor & Francis Journals, vol. 24(3), pages 357-374.

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