'Here, Dollars, Dollars...' - Estimating Currency Demand and Worldwide Currency Substitution

Abstract

I obtain very different percentage estimates of the American, German and Swiss currency that are held outside of these nations than previously done. My estimates are based on currency demand equations implied by cointegrating vectors for Canada, Holland, and Austria. In 1996, the United States estimate is much lower at 30% abroad and the German much higher at 69%. The U.S. estimate falls slowly over the 1960s and was as low as 5% in the early to mid 1970s, only to rise again in the late 70s-early 80s and during the 90s. 'Worldwide currency substitution' has roughly tripled in the past decade in constant dollar terms.

Keywords: international use of the dollar, underground economy, money demand

JEL Classification: E41, F41, K42