Macroeconomic trade effects of vehicle currencies: Evidence from 19th century China

Makram El-Shagi and Lin Zhang

No 23/2016, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: We use the Chinese experience between 1867 and 1910 to illustrate how the volatility of vehicle currencies affects trade. Today's widespread vehicle currency is the dollar. However, the macroeconomic effects of this use of the dollar have rarely been addressed. This is partly due to identification problems caused by its international importance. China had adopted a system, where silver was used almost exclusively for trade, similar to a vehicle currency. While being important for China, the global role of silver was marginal, alleviating said identification problems. We develop a bias corrected structural VAR showing that silver price fluctuations significantly affected trade.

Keywords: vehicle currency; China; SVAR; small sample (search for similar items in EconPapers)
JEL-codes: C32 F14 F31 F41 N15 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-cna, nep-his and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwhdps:232016

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