Measurement of Co-Circulation of Currencies

IMF Working Papers, March 1, 1995

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Measurement of Co-Circulation of Currencies

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Bibliographic details

• Authors: Russell C Krueger, Jiming Ha
• Published: March 1, 1995
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451845228.001

Summary and central thesis

• “Co-circulation” involves the regular use of two or more currencies within an economy.
• The paper examines methodologies to measure the extent to which foreign currencies are circulated within an economy.
• Ample anecdotal evidence exists that the U.S. dollar, DM, and other currencies are widely used outside their home countries as general mediums of exchange, as speculative instruments, or as means of saving.
• Co-circulation is rarely estimated, which can result in serious errors in statistical estimates of international capital flows and monetary aggregates.
• Limited evidence available suggests that co-circulation is widespread and large scale in some countries.

Measurement methodologies examined

• A variety of measurement techniques are reviewed that might be used in various situations to estimate foreign currency circulation.
• The paper notes that estimation remains difficult or impossible in some settings.
• An appendix by Roman Zytek discusses possible sampling biases in measuring co-circulation due to segmentation in markets.

Key findings and evidence

• Co-circulation can affect accuracy of statistical estimates of international capital flows and monetary aggregates.
• Evidence cited is described as limited but indicates widespread and large-scale co-circulation in some countries.
• The paper identifies multiple uses of foreign currency outside home countries: as general mediums of exchange, as speculative instruments, and as means of saving.

Policy implications

• Discusses implications of co-circulation regarding:
  • Seigniorage
  • Inflation control
  • The partial integration of monetary systems that accompanies co-circulation

Subjects and keywords (as listed)

• Subjects: Bank deposits, Currencies, Demand for money, Exchange rate adjustments, Exchange rate arrangements, Financial services, Foreign exchange, Money
• Keywords: Africa, Bank deposits, capital flight, Central America, Central and Eastern Europe, circulating currency, Currencies, currency flow, currency holding, currency movement, Demand for money, demand model, dollar-denominated money balance, Eastern Europe, exchange rate, Exchange rate adjustments, Exchange rate arrangements, Global, real-time currency census system, speculation purpose, tax receipt, transfers trend, U.S. dollar, WP