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Trade finance and international currency: a moneatary search approach

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  • Liu, Tao

Abstract

The determinants of international currency received a lot of attention since the great recession. Classic literature focused on economy size and openness, but that couldn't explain why RMB remains largely national, while China is already leading in international trade. In this paper, I verified the importance of financial development for currency internationalization using SWIFT trade finance data. Then I built a two-country monetary search model where trade takes time, and lack of committment makes exporter and importer rely on bank-intermediated finance. The agent's currency choice is related with terms of trade, monetary policy, and financial efficiency. Optimal monetary policy differs according to currency regime. Related topic such as size effect and global imbalance is also discussed.

Suggested Citation

  • Liu, Tao, 2016. "Trade finance and international currency: a moneatary search approach," MPRA Paper 68834, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:68834
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    References listed on IDEAS

    as
    1. Chinn, Menzie D. & Ito, Hiro, 2006. "What matters for financial development? Capital controls, institutions, and interactions," Journal of Development Economics, Elsevier, vol. 81(1), pages 163-192, October.
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    4. Kamps, Annette, 2006. "The euro as invoicing currency in international trade," Working Paper Series 665, European Central Bank.
    5. Jung, Kuk Mo & Lee, Seungduck, 2015. "A Liquidity-Based Resolution of the Uncovered Interest Parity Puzzle," MPRA Paper 64164, University Library of Munich, Germany.
    6. Friberg, Richard & Wilander, Fredrik, 2008. "The currency denomination of exports -- A questionnaire study," Journal of International Economics, Elsevier, vol. 75(1), pages 54-69, May.
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    8. Benjamin Lester & Andrew Postlewaite & Randall Wright, 2012. "Information, Liquidity, Asset Prices, and Monetary Policy," Review of Economic Studies, Oxford University Press, vol. 79(3), pages 1209-1238.
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    Cited by:

    1. Liu, Tao & Wang, Xiaosong, 2016. "The Road to International Currency: Global Perspective and Chinese Experience," MPRA Paper 72877, University Library of Munich, Germany.

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    More about this item

    Keywords

    Trade finance; international currency; monetary search; global imbalance; optimal monetary policy;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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