International Currency Dominance

Joseph Abadi, Jesus Fernandez-Villaverde and Daniel Sanches

No 34817, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We present a micro-founded monetary model of the world economy to study international currency competition. Our model features "unipolar'' equilibria, with a single dominant international currency, and "multipolar'' equilibria, in which multiple currencies circulate internationally. Long-run equilibria are highly history-dependent and tend towards the emergence of a dominant currency. Governments can compete to internationalize their currencies by offering attractive interest rates on their sovereign debt, but large economies have a natural advantage in ensuring the dominance of their currencies. We calibrate the model to assess the quantitative importance of these mechanisms and study the international monetary system's dynamics under several counterfactual scenarios.

JEL-codes: E42 E58 G21 (search for similar items in EconPapers)
Date: 2026-02
Note: EFG IFM
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Working Paper: International Currency Dominance (2026)
Working Paper: International Currency Dominance (2025)
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