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On the Welfare Benefits of An International Currency

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  • Prakash Kannan

Abstract

Is it beneficial for a country''s currency to be used internationally? And, if so, can we quantify the benefit? Since the emergence of the euro, there has been great interest in the consequences of a transfer of the US dollar''s premier international role to the euro. Building on recent advancements in the literature on search models of money, this paper presents a novel model-based approach towards assessing the welfare benefits associated with the international use of a country''s currency. The welfare gain for the Euro area in having the euro internationally used ranges from 1.7% to 2.1% of consumption.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/49.

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Length: 37
Date of creation: 01 Mar 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/49

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Keywords: Economic models; inflation; inflation rates; price level; monetary equilibria; monetary equilibrium; monetary economics; rate of inflation; money demand; foreign currency; monetary models; average inflation; money balances; inflation rate; money supply; real money; monetary fund; general price level; lower inflation; real money supply; monetary arrangements; monetary theory; international monetary arrangements; terms of trade; real interest rate; money transfers; monetary value; inflation tax; quantity of currency; money growth; steady-state inflation;

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Citations

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Cited by:
  1. Thimann, Christian, 2009. "Global roles of currencies," Working Paper Series 1031, European Central Bank.
  2. Stijn Claessens & M. Ayhan Kose, 2013. "Financial Crises: Explanations, Types and Implications," CAMA Working Papers 2013-06, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  3. Kannan, Prakash, 2009. "On the welfare benefits of an international currency," European Economic Review, Elsevier, vol. 53(5), pages 588-606, July.
  4. Hyoung-kyu Chey, 2013. "The Concepts, Consequences, and Determinants of Currency Internationalization," GRIPS Discussion Papers 13-03, National Graduate Institute for Policy Studies.
  5. Zhang, Cathy, 2013. "An Information-Based Theory of International Currency," MPRA Paper 42114, University Library of Munich, Germany.

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