Attachment to a National Money: Evidence on Currency Holding at Different Levels of Development

19 Pages Posted: 1 Jun 2004

See all articles by Philip N. Jefferson

Philip N. Jefferson

Swarthmore College

Stephen A. O'Connell

Swarthmore College - Economics Department; University of Oxford - Centre for Study of African Economics

Abstract

Most governments issue and maintain a national money stock. Their reasons for doing so include national identity, deficit finance, and policy independence. Against this background, the authors examine agents' attachment to national currencies as revealed in the pattern of currency holding across countries and over time. The econometric evidence suggests that economic theory can enhance our understanding of these patterns. In a sample of more than 130 countries from 1960 to 1998, the most defensible reduced-form estimates impute some explanatory power to the various stages of financial development. Along with expected inflation and worldwide financial innovation, this factor provides a partial explanation of currency use around the world. Much variation in currency use across countries over time remains unexplained, however. This suggests that economists' understanding of the attachment to national currencies is far from complete.

Suggested Citation

Jefferson, Philip N. and O'Connell, Stephen A., Attachment to a National Money: Evidence on Currency Holding at Different Levels of Development. Review of Development Economics, Vol. 8, No. 2, pp. 179-197, May 2004. Available at SSRN: https://ssrn.com/abstract=531753

Philip N. Jefferson (Contact Author)

Swarthmore College ( email )

Department of Economics
Swarthmore, PA 19081
United States
610-690-6856 (Phone)
610-328-7352 (Fax)

Stephen A. O'Connell

Swarthmore College - Economics Department ( email )

Swarthmore, PA 19081
United States
610-328-8107 (Phone)
610-328-7352 (Fax)

HOME PAGE: http://www.swarthmore.edu/SocSci/soconne1/

University of Oxford - Centre for Study of African Economics

Wellington Square
Oxford OX1 3JP
United Kingdom

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