【IMIWorkingPaperNo.1603[EN]】TheGeographicDistributionofInternationalCurrenciesandRMBinternationalization

【Abstract】

The paper investigates the determinants of geographical distribution of international currencies in global financial market transactions. We implement a gravity model, in which international currency distribution depends on the characteristics of the source and destination countries. We find that the source country’s currency is more likely to be used in the financial market transactions of the destination country if the bilateral trade and capital flows are large or the destination country’s economy is the larger of the two. We also find that the level of development of the destination country’s financial market and whether the two countries use a common language are important determinants of the currency distribution. In addition, our model suggests that, to be a true international currency, the renminbi should be used more extensively in the financial markets of the US and UK.

【Keywords】

Currency Internationalization; Distribution of Currencies; Gravity Model

【Author】

He Qing: Research Fellow of IMI; School of Finance & China Financial Policy Research Center, Renmin University of China

Iikka Korhonen: BOFIT- Institute for Economies in Transition, Bank of Finland

Guo Junjie: Department of Economics, Indiana University Bloomington

Liu Fangge: Academic Journal Press, Renmin University of China