The International Supply of Reserve Currency

This paper provides insights into the historical inefficiencies and instabilities of the international monetary system, spanning from the gold standard to modern "paper" currency systems. It analyzes the historical limited supply of safe assets within the reserve currency, as indicated by positive liquidity premia, both from government and private issuance. Additionally, it explores the macroeconomic and financial instabilities of shortages in the supply of safe assets with respect to the challenges of stabilizing inflation and economic activity. Innovations stemming from the competition of cryptocurrencies and the associated blockchain technology hold the potential for improving these outcomes.