Currency Development through Liquidity Provision

Antonio Coppola, Arvind Krishnamurthy and Chenzi Xu

AEA Papers and Proceedings, 2025, vol. 115, 599-604

Abstract: Drawing on the experiences of the historical Eurodollar market and recent Chinese dollar bond issuances traded outside US jurisdiction at negative spreads to Treasuries, we examine the conditions under which a parallel offshore dollar financial system that circumvents Western sanctions may emerge. We propose a model in which liquidity provision and a safe bond supply drive currency use. We characterize three equilibrium regimes: High convenience yields emerge in both the initial sanctions-driven region and the final liquidity-driven region, separated by an intermediate region. Transitions between equilibria depend on safe-asset supply and liquidity technologies, in addition to endogenous dynamic complementarities.

JEL-codes: D74 E42 E44 F30 F51 P34 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/pandp.20251042 (application/pdf)
https://www.aeaweb.org/articles/materials/23223 (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

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:aea:apandp:v:115:y:2025:p:599-604

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/subscribe.html

DOI: 10.1257/pandp.20251042

Access Statistics for this article

AEA Papers and Proceedings is currently edited by William Johnson and Kelly Markel

More articles in AEA Papers and Proceedings from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().