The International Medium of Exchange

Résumé

We propose a model of endogenous, persistent coordination on the international medium of exchange. An asset becomes the dominant medium because it is widely held, and remains widely held because it is dominant. The country issuing the dominant asset is a net debtor, but earns an \exorbitant privilege" on its position. In a calibrated version of the model, steady states with one dominant asset are stable, whereas multipolar steady states are not. The dominant country experiences a signicant welfare gain, most of which is accrued in transition. Trade wars reduce the size of privilege, especially harming the dominant country.

Mots-clés