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The road to currency internationalization: Global perspectives and chinese experience

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  • Liu, Tao
  • Wang, Xiaosong
  • Woo, Wing Thye

Abstract

This paper studies international currency use in financial transactions. A currency becomes international when it circulates outside of its issuing country, and advances to vehicle currency status if used by non-residents. With currency information from the SWIFT dataset, we estimate a gravity model to explain the geographical distribution of international currency use. A higher level of economic integration and stable macroeconomic conditions increase the international use of major currencies such as USD and EUR. Merchandise trade and portfolio investment are most helpful in increasing the direct use of currency, while foreign direct investment (FDI) has a stronger effect on promoting vehicle use. Merchandise trade improves the intensity of the global use of the Chinese renminbi (RMB), while FDI increases the number of its users. The policy effect on RMB internationalization is significant only in enhancing the intensity of direct use. Furthermore, the global use of RMB is decreasing by distance, implying that its role is more regional. We recommend outward FDI through the Belt and Road Initiative to further promote RMB internationalization.

Suggested Citation

  • Liu, Tao & Wang, Xiaosong & Woo, Wing Thye, 2019. "The road to currency internationalization: Global perspectives and chinese experience," Emerging Markets Review, Elsevier, vol. 38(C), pages 73-101.
    • Handle: RePEc:eee:ememar:v:38:y:2019:i:c:p:73-101
    DOI: 10.1016/j.ememar.2018.11.003
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    Cited by:

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    2. Huiqing Li & Daofan Jia & Jia Li, 2023. "Currency internationalization and openness: A paradigm from renminbi," Review of International Economics, Wiley Blackwell, vol. 31(3), pages 956-984, August.
    3. Keddad, Benjamin & Sato, Kiyotaka, 2022. "The influence of the renminbi and its macroeconomic determinants: A new Chinese monetary order in Asia?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 79(C).
    4. Chunming Shen, 2022. "Digital RMB, RMB Internationalization and Sustainable Development of the International Monetary System," Sustainability, MDPI, vol. 14(10), pages 1-22, May.
    5. Guo, Dong & Zhou, Peng, 2021. "The rise of a new anchor currency in RCEP? A tale of three currencies," Economic Modelling, Elsevier, vol. 104(C).
    6. Peijie Wang & Ping Wang, 2024. "Emerging influence of the RMB on currency markets in a transpiring tri‐polar international monetary system," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 443-464, January.
    7. Yu, Ziliang & Liu, Xiaomeng & Liu, Zhuqing & Li, Yang, 2023. "Central bank swap arrangements and exchange rate volatility: Evidence from China," Emerging Markets Review, Elsevier, vol. 56(C).
    8. Liu, Tao & Lu, Dong & Woo, Wing Thye, 2019. "Trade, finance and international currency," Journal of Economic Behavior & Organization, Elsevier, vol. 164(C), pages 374-413.
    9. Liu, Tao & Wang, Xiaosong & Woo, Wing Thye, 2022. "The rise of Renminbi in Asia: Evidence from Network Analysis and SWIFT dataset," Journal of Asian Economics, Elsevier, vol. 78(C).
    10. Vissa, Siva Kameswari & Thenmozhi, M., 2022. "What determines mergers and acquisitions in BRICS countries: Liquidity, exchange rate or innovation?," Research in International Business and Finance, Elsevier, vol. 61(C).

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    More about this item

    Keywords

    RMB internationalization; gravity model; vehicle currency; Belt and Road Initiative;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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