Oil Currency and the Dollar Standard: A Simple Analytical Model of an International Trade Currency |
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| Authors: | MICHAEL B DEVEREUX KANG SHI JUANYI XU |
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| Institution: | 1. Michael B. Devereux is at the University of British Columbia, CEPR, NBER (E‐mail: devm@interchange.ubc.ca).;2. Kang Shi is at the Chinese University of Hong Kong (E‐mail: kangshi@cuhk.edu.hk).;3. Juanyi Xu is at the Hong Kong University of Science and Technology (E‐mail: jennyxu@ust.hk). |
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| Abstract: | The U.S. dollar is the central reference currency for international trade pricing and the main invoicing currency for primary commodities. This paper links these two observations within a stylized theoretical framework, and shows how to obtain a quantitative estimate of the gain to the U.S. economy when the dollar is a reference currency. With dollar invoicing of primary commodities, U.S. firms bear less exchange rate risk than foreign firms. This asymmetry leads to a dollar standard in international goods pricing. We then derive a simple analytical formula to calculate the gains and find that they are extremely small. |
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| Keywords: | F3 F4 oil currency currency of export pricing dollar standard welfare gain |
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