Strong currency wins as international medium of exchange in global economy
The article discusses how two countries can have different currencies with varying inflation rates, yet both are used for transactions. Even with higher inflation, a currency can still be in demand due to taxes and government actions. The currency with lower inflation can benefit from seigniorage, even from residents of other countries. In a policy game, the equilibrium inflation rate is zero. Abandoning a weak currency can lead to lower welfare. Monetary unions are also briefly explored.