International Money and Common Currencies in Historical Perspective

Gerald P. Dwyer Jr. and James R. Lothian
Working Paper 2002-7
June 2002

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The authors review the history of international monies and the theory related to their adoption and use. There are four key characteristics of these currencies: high unitary value; relatively low inflation rates for long periods; issuance by major economic and trading powers; and spontaneous, as opposed to planned, adoption internationally. The economic theory of the demand for money provides support for the importance of these characteristics. The value of a unit is arbitrary for a fiat money, but the other characteristics are likely to be important for determining any fiat money that will be the international money in the future. If the euro continues to exist for the next half century or so and has a relatively stable value, the authors conclude that the euro is likely to be serious competition for the dollar as the international money.

JEL classification: E42, F33, N10

Key words: euro, international money, fiat money, dollar, search theory

The authors presented an earlier version of this paper at the Conference on Euro and Dollarization: Forms of Monetary Union in Integrating Regions. They thank Sven Arndt, Benjamin J. Cohen, Cesare Robotti, and George von Furstenberg for comments on an earlier draft of this paper. The views expressed here are the authors’ and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors’ responsibility.

Please address questions regarding content to Gerald P. Dwyer Jr., Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, Georgia 30309-4470, 404-498-7095, 404-498-8810 (fax),, or James R. Lothian, Distinguished Professor of Finance, School of Business, Fordham University, 113 West 60th Street, New York, New York 10023, 212-636-6147, 212-765-5573 (fax),