NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Currency Substitution

Alberto Giovannini, Bart Turtelboom

NBER Working Paper No. 4232
Issued in December 1992
NBER Program(s):   IFM

This paper reviews the extensive theoretical and empirical literature on currency substitution. After discussing the ambiguity surrounding the definition of currency substitution, the paper illustrates the causes of substitutability of different currencies using a cash-in-advance model and a model where money yields liquidity services. The effects of currency substitutability on exchange rates, international adjustment and the inflation tax are discussed. The paper also reviews the empirical facts on the size of currency substitution in developed and developing countries. Whereas currency substitution is found to be sizable in some developing countries and on the rise in the European Community, estimates of the ability to substitute foreign for domestic currency are often found to be unreliable due to data, methodological and conceptual problems. Policy implications of currency substitution for international monetary cooperation and inflationary finance are explored.

download in pdf format
   (2466 K)

email paper

This paper is available as PDF (2466 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w4232

Users who downloaded this paper also downloaded these:
Chinn and Frankel w13909 The Euro May Over the Next 15 Years Surpass the Dollar as Leading International Currency
Giovannini w3636 Currency Substitution and the Fluctuations of Foreign-Exchange Reserves with Credibly Fixed Exchange Rates
Ortiz Dollarization in Mexico: Causes and Consequences
Reinhart, Rogoff, and Savastano w10015 Addicted to Dollars
Engel w2140 The Real Effects of Foreign Inflation in the Presence of Currency Substitution
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us