A Key Currency and a Local Currency - A simple theoretical model and its welfare implications

執筆者 KOBAYASHI Keiichiro  (Fellow, RIETI)
発行日/NO. 2004年8月  04-E-025


Is there any welfare distortion by the asymmetry between a key currency and a local currency in international trade? Interpreting this asymmetry as an international liquidity constraint for countries that cannot issue the key currency, I show that the answer may be yes. It is shown that the country that issues the key currency can raise its level of consumption by increasing the amount of its currency held by foreigners, or in other words, by increasing its external debt.