Cathy Zhang, 09 January 2016

The US dollar has played a central role in the international monetary system, but it currently faces stiff competition from other currencies. This column argues that the benefits of international liquidity provision might be higher than previously thought when one accounts for general equilibrium effects. Quantitatively, the welfare cost of losing international status is not inconsequential for the issuing country. For the US, it amounts to between 0.4% and 1.1% of consumption each year. 

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