TY  - JOUR
AU  - Buiter,Willem H.
AU  - Eaton,Jonathan
TI  - International Balance of Payments Financing and Adjustment
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1120
PY  - 1984
Y2  - April 1984
UR  - http://www.nber.org/papers/w1120
L1  - http://www.nber.org/papers/w1120.pdf
N1  - Author contact info:
Willem H. Buiter
Citigroup Centre
Canada Square, Canary Wharf
London E14 5LB
UNITED KINGDOM
E-Mail: willembuiter@btinternet.com

Jonathan Eaton
Department of Economics
Penn State University
608 Kern Graduate Building
University Park, PA 16802-3306
Tel: (814) 865 - 8871
Fax: (814) 863 - 4775
E-Mail: jxe22@psu.edu
AB  - This paper explores some implications of the use of national currencies as international reserves. First, a closed economy overlapping-generations model is developed to derive time-consistent tax and inflation policies for a government that is financing a given stream of expenditures. Second, the effects of allowing a government to hold a foreign currency as a reserve asset and to have its currency held as a reserve asset abroad are considered. The use of national currencies as currencies of denomination for international lending creates an incentive for the governments whose currencies are used to alter their inflation rates to extract resources from the rest of the world. When reserves are constrained to be nonnegative the use of national currencies as international reserves raises the inflation rate in reserve issuing countries but does not effect theiInflation rate in reserve holders. The opposite result arises when loans are denominated in the borrowers' currencies.
ER  -