Search-Theoretic Models of International Currency
The authors summarize some recent results in the literature on search-theoretic models of international currency. They think that models in this class will eventually prove useful for studying important issues in international monetary economics. The analysis illustrates the potential welfare gains from having one currency (or two currencies that serve as perfect substitutes). However, it also indicates that there can be a welfare loss in one country from having a unified currency if another country is pursuing a particularly bad policy from the former’s point of view.