Deposits and Currency Internationalization
Date Issued
2015
Date
2015
Author(s)
Guo, Ming-Hui
Abstract
This paper develops a two-currency model with money and deposit to study the effect of offshore deposits policy on currency internationalization, welfare, and its monetary policy implication. Deposits in this paper may perform the role as a store of value and a medium of exchange. Whether deposits or foreign money will be accepted by sellers depends on the cost to recognize it and the expected gain from increased trade. We found that when the cost of recognizing both foreign currency and deposit is smaller than the benefit of accepting both as means of payment, offshore deposit can facilitate internationalization of a currency. Besides, offshore deposits policy can improve the welfare of the country issuing the international currency by increasing seignorage revenue and interest income, but has negative effect on trade surplus. The welfare of the country accepting the international currency may also be higher under policy because its citizens can receive interests. As for the threat of losing international status, under the offshore deposits policy an stricter inflation discipline is put on the issuing country.
Subjects
Deposits
Internationalization
Means of payment
Welfare
Search
Type
thesis
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ntu-104-R02323004-1.pdf
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