The Benefits and Costs of an International Currency: Getting the Calculus Right

Does it pay to issue an international money? Should a government promote internationalization of its currency? And if so, how might policy makers shape cross-border use to maximize net gains? The aim of this essay is to address these old questions anew, in hopes of providing clearer insight into the strategic calculus involved. Scholars have debated the net benefits or costs of currency internationalization for decades. Yet despite much sound and fury little analytical consensus exists. The conventional literature is marred by at least three critical defects, which might be called the three M’s—Misconceptions, Misplaced Concreteness, and outright Mistakes. A proper appreciation of the three M’s, I endeavor to show, can take us a long way toward getting the calculus right.