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The Empirics of International Currencies: Network Externalities, History and Persistence

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  • Marc Flandreau
  • Clemens Jobst

Abstract

Using a new database for the late nineteenth century, when the pound sterling was the world's leading international currency, this article provides evidence on the empirical determinants of international currency status. We report evidence in favour of the search-theoretic models to international currencies. Using a microeconomic model of currency choice, we provide empirical support to strategic externalities. We find strong confirmation of the existence of persistence, but reject the view that the international monetary system was subject to pure path dependency and lock-in effects, suggesting that, even in the absence of WWI, the USD was bound to overtake sterling. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009.

Suggested Citation

  • Marc Flandreau & Clemens Jobst, 2009. "The Empirics of International Currencies: Network Externalities, History and Persistence," Economic Journal, Royal Economic Society, vol. 119(537), pages 643-664, April.
  • Handle: RePEc:ecj:econjl:v:119:y:2009:i:537:p:643-664
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    References listed on IDEAS

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    Cited by:

    1. Reiss, Daniel Gersten, 2014. "Invoice Currency in Brazil," MPRA Paper 59412, University Library of Munich, Germany.
    2. Marc Flandreau & Kim Oosterlinck, 2011. "Was the Emergence of the International Gold Standard Expected? Melodramatic Evidence from Indian Government Securities," Working Papers 0005, European Historical Economics Society (EHES).
    3. Joshua Aizenman, 2010. "International Reserves and Swap Lines in Times of Financial Distress: Overview and Interpretations," Working Papers id:3022, eSocialSciences.
    4. He, Qing & Korhonen, Iikka & Guo, Junjie & Liu, Fangge, 2016. "The geographic distribution of international currencies and RMB internationalization," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 442-458.
    5. Marc Flandreau & Christophe Galimard & Clemens Jobst & Pilar Nogués-Marco, 2009. "Monetary geography before the Industrial Revolution," Cambridge Journal of Regions, Economy and Society, Cambridge Political Economy Society, vol. 2(2), pages 149-171.
    6. Barry Eichengreen & Chitu Livia & Arnaud Mehl, 2014. "Stability or upheaval? The currency composition of international reserves in the long run," Globalization Institute Working Papers 201, Federal Reserve Bank of Dallas.
    7. Hyoung-kyu Chey, 2013. "The Concepts, Consequences, and Determinants of Currency Internationalization," GRIPS Discussion Papers 13-03, National Graduate Institute for Policy Studies.
    8. Chiţu, Livia & Eichengreen, Barry & Mehl, Arnaud, 2014. "When did the dollar overtake sterling as the leading international currency? Evidence from the bond markets," Journal of Development Economics, Elsevier, vol. 111(C), pages 225-245.
    9. Barry Eichengreen & Marc Flandreau, 2012. "The Federal Reserve, the Bank of England, and the Rise of the Dollar as an International Currency, 1914–1939," Open Economies Review, Springer, vol. 23(1), pages 57-87, February.
    10. Rita Martins de Sousa, 2019. "Portugal adoption of the gold standard: political reasons for a monetary choice (1846-1854)," Working Papers GHES - Office of Economic and Social History 2019/64, ISEG - Lisbon School of Economics and Management, GHES - Social and Economic History Research Unit, Universidade de Lisboa.
    11. Akerman, Anders & Seim, Anna Larsson, 2014. "The global arms trade network 1950–2007," Journal of Comparative Economics, Elsevier, vol. 42(3), pages 535-551.
    12. Nogues-Marco, Pilar, 2017. "Money Markets and Exchange Rates in Pre-Industrial Europe," Working Papers unige:100808, University of Geneva, Paul Bairoch Institute of Economic History.
    13. Liu, Tao & Wang, Xiaosong & Woo, Wing Thye, 2019. "The road to currency internationalization: Global perspectives and chinese experience," Emerging Markets Review, Elsevier, vol. 38(C), pages 73-101.
    14. Reiss, Daniel G, 2012. "Easing trade costs within Mercosul," MPRA Paper 42174, University Library of Munich, Germany.
    15. Sgard, Jérôme, 2015. "Global economic governance during the middle ages: The jurisdiction of the champagne fairs," International Review of Law and Economics, Elsevier, vol. 42(C), pages 174-184.
    16. John Singleton & Catherine R. Schenk, 2015. "The shift from sterling to the dollar, 1965–76: evidence from Australia and New Zealand," Economic History Review, Economic History Society, vol. 68(4), pages 1154-1176, November.
    17. Ignazio Angeloni & André Sapir, 2011. "The international monetary system is changing- what opportunities and risks for the euro?," Working Papers 632, Bruegel.
    18. Maylis Avaro, 2020. "Zombie International Currency: The Pound Sterling 1945-1973," IHEID Working Papers 03-2020, Economics Section, The Graduate Institute of International Studies, revised 27 Apr 2021.
    19. repec:bof:bofitp:urn:nbn:fi:bof-201506101281 is not listed on IDEAS
    20. Chitu, Liva & Eichengreen, Barry & Mehl, Arnaud, 2012. "When did the dollar overtake sterling as the leading international currency? Evidence from the bond markets (revised)," Department of Economics, Working Paper Series qt3v03b36h, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    21. Daniel Gersten Reiss, 2015. "Invoice currency: Puzzling evidence and new questions from Brazil," Economia, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 16(2), pages 206-225.
    22. Zhang, Cathy, 2014. "An information-based theory of international currency," Journal of International Economics, Elsevier, vol. 93(2), pages 286-301.
    23. Airaudo, Marco, 2012. "Endogenous Dollarization, Sovereign Risk Premia and the Taylor Principle," School of Economics Working Paper Series 2012-11, LeBow College of Business, Drexel University.
    24. Esteves, Rui & Geisler Mesevage, Gabriel, 2019. "Social Networks in Economic History: Opportunities and Challenges," Explorations in Economic History, Elsevier, vol. 74(C).
    25. Benjamin Cohen, 2012. "The Benefits and Costs of an International Currency: Getting the Calculus Right," Open Economies Review, Springer, vol. 23(1), pages 13-31, February.

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