Essential hybridity: A money view of FX

Economics and finance typically analyze the exchange rate as the relative price of goods and assets, respectively. By contrast, this paper explores a “money view” which understands the exchange rate as the relative price of money, a price that is determined in dealer markets by the order flow facing profit-seeking dealers. The economics of the FX dealer are analyzed using an extension of Treynor's model of security dealers; central banks are analyzed as FX dealers of last resort.