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Multiple Reserve Currencies and Renminbi Use

Author

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  • Satyendra Kumar Gupta

    (Department of Economics, Nanyang Technological University, 50 Nanyang Ave, Singapore 639798, Singapore)

  • Ashima Goyal

    (#x2020;Department of Economics, Indira Gandhi Institute of Development Research Mumbai, Film City Rd, Santosh Nagar, Nagri Niwara Cooperative Housing Society, Goregaon East, Mumbai, Maharashtra 400065, India)

Abstract

We analyze prospects for the Chinese renminbi to become a major international currency, along with the US dollar, in a multiple reserve currency world. Analytical models on switching costs in networks and on currency choice under direct and indirect transaction costs are used to derive variables for empirical analysis. While network size and financial market depth (lower transaction costs) favor incumbents, changes in trade-related bargaining power and in currency volatility could favor newcomers. The models also point to political determinants affecting currency choice. We develop indices to quantify some of these. When the bargaining power index is used in estimation, it shows capital account openness and currency stability have to complement a rise in trade share for an aspiring reserve currency.

Suggested Citation

  • Satyendra Kumar Gupta & Ashima Goyal, 2017. "Multiple Reserve Currencies and Renminbi Use," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 8(02), pages 1-35, June.
    • Handle: RePEc:wsi:jicepx:v:08:y:2017:i:02:n:s1793993317500119
    DOI: 10.1142/S1793993317500119
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    References listed on IDEAS

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