Eiji Ogawa, Makoto Muto, 26 July 2019

Given the US dollar’s historical prominence in international currency systems, it can be argued that a large part of its present-day importance is due to inertia. This column analyses the determinants of the utility of four international currencies, focusing on the liquidity premium. It shows that while inertia does have a strong effect on a currency’s utility, a liquidity shortage can also reduce the utility of an international currency.

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