Trade finance and international currency

Liu, Tao (2015): Trade finance and international currency.

Abstract

The determinants of international currency received a lot of academic attention since great recession, especially given China's intention to internationalize RMB. Recent empirical studies in history and international economics confi�rmed the importance of �nancial market development in this process. To provide micro-foundation for such observation, I built a two-country monetary search model with �nancial friction. Trade takes a long time, and the lack of trust makes importer and exporter rely on bank-intermediated �nance. The choice of international currency is related with terms of trade, monetary policy, and �nancial market development. The eff�ect of monetary policy on international trade di�ffers according to currency regime. Related topic such as size eff�ect and capital account liberalization is also discussed.

• Item Type: MPRA Paper
• Language: English
• Keywords: International currency; RMB internationalization; monetary search
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E42 - Monetary Systems ; Standards ; Regimes ; Government and the Monetary System ; Payment Systems; F - International Economics > F3 - International Finance > F33 - International Monetary Arrangements and Institutions; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics

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