Why Do Different Countries Use Different Currencies?

Author/Editor:

Narayana Rao Kocherlakota ; Thomas Krueger

Publication Date:

February 1, 1998

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

During long periods of history, countries have pegged their currencies to an international standard (such as gold or the U.S. dollar), severely restricting their ability to create money and affect output, prices, or government revenue. Nevertheless, countries generally have maintained their own currencies. The paper presents a model where agents have heterogeneous preferences—that are private information—over goods of different national origin. In this environment, it may be optimal for countries to have different currencies; we also identify conditions where separate national currencies do not expand the set of optimal allocations. Implications for a currency union in Europe are discussed.

Series:

Working Paper No. 98/17

Subject:

English

Publication Date:

February 1, 1998

ISBN/ISSN:

9781451923087/1018-5941

Stock No:

WPIEA0171998

Format:

Paper

Pages:

22

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