Network Effects, Homogeneous Goods and International Currency Choice: New Evidence on Oil Markets from an Older Era

40 Pages Posted: 18 Mar 2014

See all articles by Barry Eichengreen

Barry Eichengreen

University of California, Berkeley; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Livia Chitu

European Central Bank (ECB)

Arnaud Mehl

European Central Bank (ECB)

Multiple version iconThere are 2 versions of this paper

Date Written: February 24, 2014

Abstract

Conventional wisdom has it that network effects are strong in markets for homogeneous goods, leading to the dominance of one settlement currency in such markets. The alleged dominance of the dollar in global oil markets is said to epitomize this phenomenon. We question this presumption with evidence for earlier periods showing that several national currencies have simultaneously played substantial roles in global oil markets. European oil import payments before and after World War II were split between the dollar and non-dollar currencies, mainly sterling. Differences in use of the dollar across countries were associated with trade linkages with the United States and the size of the importing country. That several national currencies could simultaneously play a role in international oil settlements suggests that a shift from the current dollar-based system toward a multi-polar system in the period ahead is not impossible.

Keywords: network effects, homogeneous goods, international invoicing currency, oil markets, US dollar role

JEL Classification: F30, N20

Suggested Citation

Eichengreen, Barry and Chitu, Livia and Mehl, Arnaud, Network Effects, Homogeneous Goods and International Currency Choice: New Evidence on Oil Markets from an Older Era (February 24, 2014). ECB Working Paper No. 1651. Available at SSRN: https://ssrn.com/abstract=2400344

Barry Eichengreen (Contact Author)

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Livia Chitu

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Arnaud Mehl

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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