International Currency And International Trade

1385 Words Mar 15th, 2016 6 Pages
International currency basically means the currency that is used and held beyond the borders of the issuing country, not merely for transactions with that country’s residents but also, and importantly, for transactions between nonresidents (Kenen 2009). For a country that have an international currency, it would meet various benefits and costs which could be analyzed from both economic and political dimensions.
It has be argued (Cohen 2012)that the main advantages is related to transactions costs, international seigniorage macroeconomic flexibility, political leverage and reputation.
With the internationalization of the currency .the domestic currency can be directed used for international trade valuation, payment and settlement. The foreign trade sector can use domestic currency settle the import and export business, the domestic financial Institutions and enterprises can borrow, make up international deficit with domestic currency to reduce the risk of exchange rate. So both the transactions costs in trade and for residents can be reduced.
Seigniorage could be counted as revenue for a government when the money that is created is worth more than it costs to produce it, the issuers of an international currency can gain extra seigniorage because foreigners hold large amount of domestic currency in exchange for traded goods and services .And the issuing country raises asset price and creates liquidity premium-interest rate subsidy.
The country can enhance its international…
Open Document