On the Determinants of International Currency Choice: Will the Euro Dominate the World?

34 Pages Posted: 25 Apr 2011

See all articles by Matteo Bobba

Matteo Bobba

Inter-American Development Bank (IDB) - Research Department

Andrew Powell

Inter-American Development Bank (IDB); Universidad Torcuato Di Tella - School of Business; Harvard University - Center for International Development (CID)

Giuseppe Della Corte

affiliation not provided to SSRN

Date Written: June 2007

Abstract

Money is used as a store of value, a medium of exchange and a unit of account. Most recent analyses of currency choice in an international setting have focused on the denomination of reservesthe store of value role. However, public data are only aggregate and exclude several countries. This paper focuses on currency choice for the unit of account role, employing a detailed database on security issuance across countries, time and currencies. The paper finds a stable relation between currency choice and specific real and financial variables with different specifications for developed and developing countries, as well as evidence for persistence and network externalities. Exploiting the creation of the Euro, the paper finds a large and significant Euro liquidity effect at the cost of the dollar, especially in the early years of the life of the new currency. The estimates suggest that the Euro is making significant progress toward threatening the role of the dollar as the dominant international currency.

Suggested Citation

Bobba, Matteo and Powell, Andrew P. and Powell, Andrew P. and Corte, Giuseppe Della, On the Determinants of International Currency Choice: Will the Euro Dominate the World? (June 2007). IDB Working Paper No. 513, Available at SSRN: https://ssrn.com/abstract=1820881 or http://dx.doi.org/10.2139/ssrn.1820881

Matteo Bobba (Contact Author)

Inter-American Development Bank (IDB) - Research Department ( email )

1300 New York Ave., NW
Washington, DC 20577
United States

Andrew P. Powell

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Universidad Torcuato Di Tella - School of Business ( email )

Saenz Valiente 1010
C1428BIJ Buenos Aires
Argentina
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+5411 4783-3220 (Fax)

Harvard University - Center for International Development (CID) ( email )

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Cambridge, MA 02138
United States

Giuseppe Della Corte

affiliation not provided to SSRN

No Address Available

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