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International Currency

Author

Listed:
  • Wright Randall

    () (University of Pennsylvania)

  • Trejos Alberto

    () (INCAE)

Abstract

We develop a two-country, two-currency, search-theoretic model of monetary exchange, extending previous such models by endogenizing prices using bargaining theory. We analyze features of the environment that make it more likely that a given money circulates internationally. We show the value of a given currency rises if it circulates abroad, and falls if foreign money circulates locally. Also, we show that international monies have more value at home than abroad. These results help to explain the otherwise anomalous observation that the US dollar is an outlier in the empirical relationship between income and PPP deflators.

Suggested Citation

  • Wright Randall & Trejos Alberto, 2001. "International Currency," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(1), pages 1-17, April.
  • Handle: RePEc:bpj:bejmac:v:advances.1:y:2001:i:1:n:3
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    Citations

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    Cited by:

    1. Geromichalos, Athanasios & Simonovska, Ina, 2014. "Asset liquidity and international portfolio choice," Journal of Economic Theory, Elsevier, vol. 151(C), pages 342-380.
    2. Michael B. Devereux & Shouyong Shi, 2013. "Vehicle Currency," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(1), pages 97-133, February.
    3. Kannan, Prakash, 2009. "On the welfare benefits of an international currency," European Economic Review, Elsevier, vol. 53(5), pages 588-606, July.
    4. Lotz, Sebastien, 2004. "Introducing a new currency: Government policy and prices," European Economic Review, Elsevier, vol. 48(5), pages 959-982, October.
    5. Dong, Mei & Jiang, Janet Hua, 2010. "One or two monies?," Journal of Monetary Economics, Elsevier, vol. 57(4), pages 439-450, May.
    6. Marchesiani, Alessandro & Senesi, Pietro, 2007. "Asymmetric government transaction policies and currencies substitutability," Economics Letters, Elsevier, vol. 97(2), pages 105-110, November.
    7. Zhang, Cathy, 2014. "An information-based theory of international currency," Journal of International Economics, Elsevier, vol. 93(2), pages 286-301.
    8. Benjamin Eden, 2006. "International Seigniorage Payments," Vanderbilt University Department of Economics Working Papers 0622, Vanderbilt University Department of Economics.
    9. Trejos, Alberto & Wright, Randall, 2016. "Search-based models of money and finance: An integrated approach," Journal of Economic Theory, Elsevier, vol. 164(C), pages 10-31.
    10. Craig, Ben & Waller, C.J.Christopher J., 2004. "Dollarization and currency exchange," Journal of Monetary Economics, Elsevier, vol. 51(4), pages 671-689, May.
    11. Benjamin Eden, 2009. "Liquidity Premium and International Seigniorage Payments," Vanderbilt University Department of Economics Working Papers 0901, Vanderbilt University Department of Economics.
    12. Camera, Gabriele & Winkler, Johannes, 2003. "International monetary trade and the law of one price," Journal of Monetary Economics, Elsevier, vol. 50(7), pages 1531-1553, October.
    13. Li, Yiting & Matsui, Akihiko, 2009. "A theory of international currency: Competition and discipline," Journal of the Japanese and International Economies, Elsevier, vol. 23(4), pages 407-426, December.

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