International Currencies and Endogenous Enforcement: An Empirical Analysis
March 1, 1997
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Summary
This paper investigates the determinants of the international role of a currency. It argues that standard determinants such as monetary performance and financial openness are at best imperfect indicators of a currency’s stability prospects, because the issuer’s promise of stability is not exogenously enforceable. The paper advocates an enforcement approach to international currencies that make explicit the underlying incentive incompatibilities. Additional enforcement determinants of currency internationalization are identified. The model is estimated using time-series cross-sectional analysis for three data sets. Monetary performance-related standard determinants fail to exhibit explanatory power, whereas the enforcement determinants are strongly significant and robust.
Subject: Balance of payments, Central bank autonomy, Central banks, Currencies, Exchange rates, Financial institutions, Foreign direct investment, Foreign exchange, International bonds, Money
Keywords: Asia and Pacific, Central bank autonomy, Currencies, currency characteristic, currency internationalization, currency issuer, currency nation, currency share, currency stability, Enforcement, Europe, exchange rate, Exchange rates, Foreign direct investment, Global, International bonds, international currency, normal, share curve, stability criteria, stability prospect, unit of account, Western Hemisphere, WP
Pages:
57
Volume:
1997
DOI:
Issue:
029
Series:
Working Paper No. 1997/029
Stock No:
WPIEA0291997
ISBN:
9781451844764
ISSN:
1018-5941
