Monetary Unions and Hard Pegs: Effects on Trade, Financial Development, and Stability
Volbert Alexander, George M. von Furstenberg, and Jacques Mélitz
Abstract
Financial services with global reach are a highly information-intensive business. In it, the ability to deliver reliable price formation, global liquidity, and network benefits is increasingly critical for the choice of currency denomination. Conversely, the exchange value and prospective usefulness of small currencies becomes less certain, and transaction costs for them may rise. Economic instability is invited as currency and portfolio substitution with the dominant international currency denomination increase the likelihood of currency mismatches and financial crises. In view of these faili ... More
Financial services with global reach are a highly information-intensive business. In it, the ability to deliver reliable price formation, global liquidity, and network benefits is increasingly critical for the choice of currency denomination. Conversely, the exchange value and prospective usefulness of small currencies becomes less certain, and transaction costs for them may rise. Economic instability is invited as currency and portfolio substitution with the dominant international currency denomination increase the likelihood of currency mismatches and financial crises. In view of these failings of many of the financially small currencies, the number of currencies worldwide well may shrink greatly in the decades ahead.
Keywords:
accession countries,
Argentine crisis,
banking crises,
banking supervision and regulation,
currency crises,
dollarization,
electronic money,
emerging market economies,
euro,
European,
exchange rate system,
International financial arrangements,
international monetary system,
international money and trade,
monetary economics,
monetary union,
Monetary Union,
network externalities,
portfolio substitution
Bibliographic Information
| Print publication date: 2004 |
Print ISBN-13: 9780199271405 |
| Published to Oxford Scholarship Online: August 2004 |
DOI:10.1093/0199271402.001.0001 |
Authors
Affiliations are at time of print publication.
Volbert Alexander, editor
University of Giessen, Germany
Author Webpage
George M. von Furstenberg, editor
Indiana University, USA
Author Webpage
Jacques Mélitz, editor
University of Strathclyde, Scotland, CREST, Paris, and CEPR
Author Webpage
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