International Currency Dominance

Joseph Abadi, Jesus Fernandez-Villaverde and Daniel Sanches
Additional contact information
Joseph Abadi: https://www.philadelphiafed.org/our-people/joseph-abadi

No 25-20, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: We present a micro-founded monetary model of the world economy to study international currency competition. Our model features both “unipolar” equilibria, with a single dominant international currency, and “multipolar” equilibria, in which multiple currencies circulate internationally. Governments can compete to internationalize their currencies by offering attractive interest rates on their sovereign debt. A large economy has a natural advantage in ensuring its currency becomes dominant, but if it lacks the fiscal capacity to absorb the global demand for liquid assets, the multipolar equilibrium emerges.

Keywords: Dominant Currency; International Monetary System; Interest-Rate Policy; Fiscal Capacity (search for similar items in EconPapers)
JEL-codes: E42 E58 G21 (search for similar items in EconPapers)
Pages: 38
Date: 2025-06-26
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.philadelphiafed.org/-/media/FRBP/Asset ... ers/2025/wp25-20.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedpwp:101163

Ordering information: This working paper can be ordered from

DOI: 10.21799/frbp.wp.2025.20

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Philadelphia Contact information at EDIRC.
Bibliographic data for series maintained by Beth Paul ().