Dominant Currency Paradigm: A Review

Abstract

A handful of currencies, especially the US dollar, play a dominant role in international trade.We survey the active theoretical and empirical literature that documents patterns of currency use in global trade, the implications of dominant currencies for international transmission of shocks, exchange rate pass-through, expenditure switching, and optimal monetary policy.We describe advances in the endogenous currency choice literature including conditions for the emergence and persistence of dominant currency equilibria.

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