In order to show this, the authors take a long run approach, which almost by definition the only way such claims could ever be tested. That is, is there a way to order and rank different equilibria in terms of welfare? In terms of trade finance, U.S. Moreover, the factors driving agents towards a particular currency include the liquidity of local financial markets, the availability of trade finance and the interest rate at which new debt can be financed. What are the welfare implications of international currency competition? Central bank reports, periodicals, bankers’ gazettes, evidence cited in formal hearings and secondary sources are all used to support their arguments. Throughout the book, the authors (by necessity) survive off their uncanny ability to locate disparate fragmented sources on currency use. Currencies that have wide economic and financial use beyond the borders of the home country are called international currencies. These are questions that can only be answered with the further development of solid economic theory. Can multiple currencies satisfy all of these requirements at once, and if so can all of them be used concurrently? In the end, the authors find further support for the idea that multiple currencies can and will be used internationally when economic conditions are appropriate.
It is unlikely that in the near future anyone will improve upon it either. Barry Eichengreen, Arnaud Mehl, and Livia Chiţu, How Global Currencies Work: Past, Present, and Future. Barry Eichengreen (professor of economics at the University of California, Berkeley) along with Arnaud Mehl and Livia Chiţu (two economists at the European Central Bank) tackle this question in this book. However, American banks were finally authorized to engage in international activity with the advent of the Federal Reserve in 1914. The regression results point to the importance of large bank activity and also to the role of the Federal Reserve in providing support for the market. The data collected are also analyzed with the help of regression analysis. When economic conditions dictate, there are many benefits from doing so. Obviously a currency has to satisfy some necessary conditions including delivering stable value, offering sufficient liquidity and so forth. Under what conditions are both parties (users and issuers) better off than under a status quo ex ante? Persistence and inertia are a defining feature of the traditional view.
A competing view argues that monopoly and dominance have been over-stated. This historical evidence is supportive of the “new” view. Evidence consistent with these and more elaborate arguments is marshalled. Each chapter brings to bear the real world complexity of establishing a dominant currency but also deftly relates to the more abstract theory and to the master narrative of the book. Chapter 5 is followed by an interesting set of case studies on the decline of sterling after World War II, the quick rise and then fall of the yen in the 1980s, the emergence of the euro after 1999, and of course the incipient rise of the Chinese Renminbi. In addition the international diplomatic and power dimensions of international currency are explored (especially as regards sterling and the Renminbi). There are two main theoretical views of international currencies according to the authors. The first, an older view, holds that an international currency is a natural monopoly, such that one currency reigns supreme at any point in time. The authors construct the foundation for a new theory of international currency based on an accurate and thorough interpretation of the historical record.
Special attention is paid to the Genoa Conference and to the issue of international reserves in the interwar period. This book takes a largely positivistic approach to the issue of international currency. Is a policy to internationalize a currency beneficial for the issuer only or for all users as well? The authors demonstrate an impressive ability in locating, collecting and organizing a large amount of scattered and fragmentary archival data from the early twentieth century on reserve holdings, the share of trade finance by currency, and currency denominations of bonds. The uses of international currencies include trade finance, bond finance, and official reserve holding. Chapter 5 presents a series of regressions in an effort to determine the reasons for the rise of the dollar especially in the realm of trade finance in the 1920s. The hand-collected data used include balance sheet data for a large number of American banks, yield spreads on various asset classes and many other relevant control variables. These might include the following: What determines the socially optimal number of international currencies? Some readers might have wished to have an answer to normative questions. Not all currencies have been used internationally to the same extent. Competing standards do not have the “installed user base” of the incumbent.
