Study Reveals How Dollar Dominance Shapes Global Economy
The article explores why certain currencies like the pound sterling and the U.S. dollar are commonly used for international transactions. It presents a model showing how one currency can become a global medium of exchange, considering transaction costs. The study reveals that the structure of payments influences the choice of a vehicle currency, but doesn't completely determine it. Additionally, a dynamic model is used to demonstrate how one currency can replace another as the preferred international medium of exchange.