The Concepts, Consequences, and Determinants of Currency Internationalization

Abstract

The international statuses of currencies shape a fundamental characteristic of the international monetary system, which has significant impacts on the world political economy by affecting the political as well as economic relationships among states. The study of international currencies has been long dominated largely by economists, however, with political economy research in this area quite underdeveloped. However, the 2008/9 global financial crisis, the subsequent European debt crisis and the recent active Chinese promotion of renminbi internationalization have spurred new and considerable interest among political economists on issues surrounding international currencies. Political economy study of international currencies has thus been gradually growing of late, and making notable progress.This study provides a comprehensive and systematic review of the literature on international currencies-covering both political economy and economics-with the primary aim of building a useful groundwork to help develop a better research framework for the political economy study of them. In particular, it discusses the international currency concept, the costs and benefits of international currency issuance, the determinants of currency internationalization, and the future prospects of the current dollar-centered international monetary system. This research in addition highlights a group of important issues that need further investigation by future political economy study of international currencies, by drawing special attention to the following issues: historical events, the political determinants of currency internationalization, government policy strategies, and the consequences of international currency choice.Keywords: Currency internationalization, dollar, euro, international currency, Special Drawing Right, renminbi, yuan 2 I. IntroductionThe international standings of currencies form a principal characteristic of the international monetary order, which shapes the world economic and political system by influencing the economic and political relationships among states. Despite their great impact on the world political economy, however, and with a few notable exceptions, 1 the political economy literature has until recently not paid much attention to the issues surrounding international currencies, and their discussion has as a result been long dominated by economists. Economists initiated extensive debate about the future of the US dollar (hereafter, "the dollar") as the dominant international currency as early as in the late 1960s, when the sustainability of the Bretton Woods system began to be questioned. And disputes among them about the dollar's future as leading international currency have emerged almost any time the dollar has lost substantial value, with particular intensification since launch of the euro in 1999.2 The contrasting low interest in international currencies on the part of political economy scholarship is in fact a bit odd, considering that one of the founding studies for international polit...

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