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Reserve currencies: Can multiplicity work?

Author

Listed:
  • Satyendra Kumar Gupta

    (Indira Gandhi Institute of Development Research)

  • Ashima Goyal

    (Indira Gandhi Institute of Development Research)

Abstract

The paper analyzes the potential rise of new reserve currencies in the context of the economic and political determinants of an international currency. Two models analyze the role of soft political power, switching costs to a new currency and transaction costs in the rise of a new currency. Quantitative indices are developed to measure these factors, which are then empirically tested and found to be statistically significant in determining the rise of international currency. The study further explores the greater use of Renminbi in East Asia and the trade integration in this region.

Suggested Citation

  • Satyendra Kumar Gupta & Ashima Goyal, 2014. "Reserve currencies: Can multiplicity work?," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2014-010, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2014-010
    as

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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2014-010.pdf
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    References listed on IDEAS

    as
    1. Menzie Chinn & Jeffrey A. Frankel, 2007. "Will the Euro Eventually Surpass the Dollar as Leading International Reserve Currency?," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 283-338, National Bureau of Economic Research, Inc.
    2. Jones, Robert A, 1976. "The Origin and Development of Media of Exchange," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 757-775, August.
    3. Menzie Chinn & Jeffrey Frankel, 2008. "Why the Euro Will Rival the Dollar," International Finance, Wiley Blackwell, vol. 11(1), pages 49-73, May.
    4. Hélène Rey, 2001. "International Trade and Currency Exchange," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(2), pages 443-464.
    5. Black, Stanley W., 1991. "Transactions costs and vehicle currencies," Journal of International Money and Finance, Elsevier, vol. 10(4), pages 512-526, December.
    6. Benjamin Cohen, 2012. "The Benefits and Costs of an International Currency: Getting the Calculus Right," Open Economies Review, Springer, vol. 23(1), pages 13-31, February.
    7. Paul R. Krugman, 1984. "The International Role of the Dollar: Theory and Prospect," NBER Chapters, in: Exchange Rate Theory and Practice, pages 261-278, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Reserve currencies; network benefilts; transaction costs; bargaining power; Renminbi;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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