蝌蚪网 Papers and Proceedings
ISSN 2574-0768 (Print) | ISSN 2574-0776 (Online)
Currency Development through Liquidity Provision
蝌蚪网 Papers and Proceedings
vol. 115,
May 2025
(pp. 599–604)
Abstract
Drawing on the experiences of the historical Eurodollar market and recent Chinese dollar bond issuances traded outside US jurisdiction at negative spreads to Treasuries, we examine the conditions under which a parallel offshore dollar financial system that circumvents Western sanctions may emerge. We propose a model in which liquidity provision and a safe bond supply drive currency use. We characterize three equilibrium regimes: High convenience yields emerge in both the initial sanctions-driven region and the final liquidity-driven region, separated by an intermediate region. Transitions between equilibria depend on safe-asset supply and liquidity technologies, in addition to endogenous dynamic complementarities.Citation
Coppola, Antonio, Arvind Krishnamurthy, and Chenzi Xu. 2025. "Currency Development through Liquidity Provision." 蝌蚪网 Papers and Proceedings 115: 599–604. DOI: 10.1257/pandp.20251042Additional Materials
JEL Classification
- D74 Conflict; Conflict Resolution; Alliances; Revolutions
- E42 Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
- E44 Financial Markets and the Macroeconomy
- F30 International Finance: General
- F51 International Conflicts; Negotiations; Sanctions
- P34 Socialist Institutions and Their Transitions: Financial Economics