Skip to main content
Article thumbnail
Location of Repository

Vehicle Currencies And the Structure Of International Exchange

By Paul R. Krugman

Abstract

This paper is concerned with the reasons why some currencies, such as the pound sterling and the U.S. dollar, have come to serve as "vehicles" for exchanges of other currencies. It develops a three—country model of payments equilibrium with transaction costs, and shows how one currency can emerge as an international medium of exchange. Transaction costs are then made endogenous, and it is shown how the underlying structure of payments limits, without necessarily completely determining, the choice and role of a vehicle currency. Finally, a dynamic model is developed, and the way in which one currency can displace another as the international medium of exchange is explored.

OAI identifier:

Suggested articles

Citations

  1. (1977). Demand for International Mediaof Exchange,"
  2. (1969). Money In a Static Theory of Optimal Payment Arrangements,"
  3. (1892). On the Origins of Money,"
  4. (1968). The Eurodollar Market: An Interpretation."
  5. (1976). The Origin and Development of Media ofExchange,"
  6. (1967). The Politics of International Money andWorld Language." Princeton Essays

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.