The determinants of international flows of U.S. currency
AbstractThis paper examines the determinants of cross-border flows of U.S. dollar banknotes, using a new panel data set of bilateral flows between the United States and 103 countries from 1990 to 2007. We show that a gravity model explains international flows of currency as well as it explains international flows of goods and financial assets. We find important roles for market size and transaction costs, consistent with the traditional gravity framework, as well as roles for financial depth, the behavior of the nominal exchange rate, the size of the informal sector, the amount of remittance credits, the degree of competition with the euro, and the history of macroeconomic instability over the previous generation. We find no role for official trade flows of goods. Our results thus confirm several hypotheses about the determinants of using a secondary currency.
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Bibliographic InfoPaper provided by Federal Reserve Bank of New York in its series Staff Reports with number 400.
Date of creation: 2009
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-11-21 (All new papers)
- NEP-CBA-2009-11-21 (Central Banking)
- NEP-IFN-2009-11-21 (International Finance)
- NEP-MON-2009-11-21 (Monetary Economics)
- NEP-OPM-2009-11-21 (Open Economy Macroeconomic)
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- Zhang, Cathy, 2013. "An Information-Based Theory of International Currency," MPRA Paper 42114, University Library of Munich, Germany.
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