Working Paper: CEPR ID: DP5529
Authors: Marc Flandreau; Clemens Jobst
Abstract: Using a new database for the late 19th century, when the pound sterling circulated all over the world, this paper provides the first review of critical empirical issues in the economics of international currencies. First, we report evidence in favor of the search-theoretic approach to international currencies. Second, we give empirical support to strategic externalities. Third, we provide strong confirmation of the existence of persistence. Finally, we reject the view that the international monetary system is subject to pure path dependency in that it cannot remain locked into some past equilibrium. Our conclusion is that, for the late 19th century at least, money and trade were complements.
Keywords: Dollar; International Currencies; Persistence; Search Theoretic Approach to Money; Sterling; Strategic Externalities
JEL Codes: F31; N32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Lower transaction costs (D23) | Greater likelihood of currency being adopted internationally (F33) |
| Historical factors (B15) | Currency status (F31) |
| Historical factors (B15) | Path dependency (C69) |
| Popularity of a currency (F31) | Interest rates (E43) |
| Historical usage patterns (N30) | Current dynamics of currency status (F31) |
| Increased adoption of a currency (E42) | Reduced liquidity premium (G19) |
| Reduced liquidity premium (G19) | Increased attractiveness for further adoption (D16) |