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 confirmed the importance of financial market development in this process. To provide micro-foundation for such observation, I built a two-country monetary search model with financial friction. Trade takes a long time, and the lack of trust makes importer and exporter rely on bank-intermediated finance. The choice of international currency is related with terms of trade, monetary policy, and financial market development. The effect of monetary policy on international trade differs according to currency regime. Related topic such as size effect 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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