International Currencies and Endogenous Enforcement: An Empirical Analysis

Author/Editor:

Roohi Prem

Publication Date:

March 1, 1997

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper investigates the determinants of the international role of a currency. It argues that standard determinants such as monetary performance and financial openness are at best imperfect indicators of a currency’s stability prospects, because the issuer’s promise of stability is not exogenously enforceable. The paper advocates an enforcement approach to international currencies that make explicit the underlying incentive incompatibilities. Additional enforcement determinants of currency internationalization are identified. The model is estimated using time-series cross-sectional analysis for three data sets. Monetary performance-related standard determinants fail to exhibit explanatory power, whereas the enforcement determinants are strongly significant and robust.

Series:

Working Paper No. 1997/029

Subject:

Balance of payments Central bank autonomy Central banks Currencies Exchange rates Financial institutions Foreign direct investment Foreign exchange International bonds Money

English

Publication Date:

March 1, 1997

ISBN/ISSN:

9781451844764/1018-5941

Stock No:

WPIEA0291997

Pages:

57

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