The Study Of Inertia Of International Currency Based On MIU Model

International currency has a feature of inertia. The dollar has been consistently depreciating in the period of floating exchange rate system, and its value as a function of a store value of an international currency has been less attractive. However, the dollar has kept being the main currency in the world. So here in this paper, we focus on this phenomenon of inertia and aim to find out the factors that affect the inertia. In the theoretic part, we make the money-in-the-utility model into one with parallel international currencies. In this extended model, we achieve the optimal composition of international currencies. The share of the key currency is related to the degree of contribution of the key currency, the interest rate and the change of exchange rate. Then this paper empirically analyzes inertia in the position of the dollar as the key currency. Based on the result of the model, we can get the estimated parameter of the degree of contribution of dollar. The result is 0.64-0.66 under the 99% confidence interval. Given the parameter, we can simulate a relation between depreciation and share of the dollar. The result shows that even if the dollar depreciates 4-5% a year, it the share is still over 50% and still can hold its position as a key currency.In the empirical part, this paper uses related data of the dollar and the euro. We collect data on the share of dollar, the interest rate of one-year bond, and the change of exchange rate of the dollar against the euro and the yen. We use the VECM model to do the empirical analysis. The result shows that the share of the dollar has a negative relationship with the change of the exchange rate, and has a positive relationship with the cross-border trade index. In the second part, we use the panel data of the euro to do the empirical work. The result shows that the proposition fits the key currency of an area.Base on the above findings, we can come to the consequence that the share of the dollar will not decrease even if the dollar depreciates at a moderate rate since it has advantage in the means of exchange. Thus the dollar will keep its position as the key currency for a certain period. The euro also has the same advantage in European, so it will keep its position as the key currency of the European. Based on the experiences, the RMB need to improve its function as a means of exchange, and to make the world need RMB in the long run.