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Despite burgeoning research on the internationalization of the Chinese renminbi, there has been surprisingly little systematic analysis of how the renminbi is actually used in foreign markets. This study provides a cross-country analysis of renminbi use in offshore foreign exchange markets, with special attention to the effects of the cooperative policy measures adopted by China and foreign states to promote the renminbi’s international use. We find that a country’s participation in the Renminbi Qualified Foreign Institutional Investor scheme (which expands its renminbi investment opportunities) and its establishment of an offshore renminbi clearing bank (which provides better renminbi payment services), but not its entry into a renminbi–local currency swap agreement, facilitate use of the renminbi in its foreign exchange markets. States have played a significant role in the rise of the renminbi as a newly internationalizing currency.

The internationalisation of the Chinese renminbi has taken a path distinct from most cases involving previous international currencies, in that policy measures adopted by governments have played crucial roles in it. This paper conducts a cross‐country analysis of the factors that have led foreign governments to introduce three primary policy infrastructures to support renminbi use—renminbi swap lines, Renminbi Qualified Foreign Institutional Investor quotas and renminbi clearing banks. Our analysis shows that a state holding renminbi assets among its reserves or having more developed financial markets is likely to establish a higher level of policy infrastructure supporting renminbi use. We also find that a country's economic and political relations with China may have meaningful impacts on the level of its establishment of those renminbi‐related policy infrastructures. These findings significantly expand our understanding of renminbi internationalisation, by identifying which non‐Chinese factors have affected its progress to date. They also contribute meaningfully to the literature on currency internationalisation and international currencies in general, by calling attention to the roles of foreign states in the process of a currency's internationalisation.

This project transforms international financial statistics into a form useful for global political analysis. The authors first theorise four distinct faces of a sovereign state's monetary and finan...

This study analyses how a state’s reactive currency statecraft – its strategic reaction to an international currency issued by a foreign state – is shaped, by devoting special attention to its broa...

Embargo Period 18 months, http://www.grips.ac.jp/list/jp/facultyinfo/chey_hyoung-kyu/

Most studies of renminbi internationalization focus mainly on the supply side, by examining China’s own economic and political conditions related to it. This study in contrast addresses the demand-side of renminbi internationalization, by providing an indepth analysis of renminbi use in ordinary foreign economies from both economic and political perspectives, with a particular focus on South Korea, China’s next-door neighbor. It finds that sustainable indigenous market forces facilitating renminbi use in South Korea remain weak, despite the country’s close economic ties with China. This research also shows, however, that the Korean government has itself recently been able, through its policy measures, to generate new domestic vested interests supporting greater use of the renminbi. These findings ultimately highlight the significant impact on the internationalization of a currency of the politics in the foreign countries using it., JEL Classification Codes: E42, F02, F33, F50, Embargo Period 24 months, http://www.grips.ac.jp/list/jp/facultyinfo/chey_hyoung-kyu/

Chinese replacement of the U.S. dollar by the renminbi as the leading international currency appears unlikely, at least in the foreseeable future, owing to weakness in China’s international political power and its economy, but the renminbi could develop into an Asian regional currency to some extent.

Who are the first users of a newly-internationalizing currency? This issue, crucial to understanding the dynamics of the emergence of a new international monetary order, remains long underexplored in the existing literature, which tends to adopt a supply-side approach analyzing mainly the international currency issuers. Our study addresses this important question, with a focus on the case of the Chinese renminbi, by employing a demand-side approach examining the international currency users through generalized ordered logistic regression analysis. Our primary argument is that a state hosting a major global financial center—a condition largely independent of influence from countries issuing international currencies—is likely to be more interested in enhancing its use of the renminbi, implying thereby that global financial institutions and the related inter-state rivalries among international currency users may play crucial roles in the shaping of a new international monetary order. We in addition find significant impacts on a state’s interest in renminbi use resulting from its institutional economic cooperation with China through a preferential trade agreement or a bilateral investment treaty, but that a country’s mere trade and investment integration with China does not meaningfully affect its government’s support for renminbi use.

Despite the central bank’s crucial position in the economy, as the issuer of the currency and the body responsible for monetary policy, its preferences regarding currency internationalization and its roles in that process have rarely been analyzed in the literature. This study attempts to fill this critical gap by bringing the central bank into the study of currency internationalization. A conventional understanding of currency internationalization is that it tends to reduce monetary policy autonomy, which implies a natural tendency of the central bank to oppose it. This study shows, however, that currency internationalization does not necessarily reduce the central bank’s monetary policy autonomy, and may in fact even strengthen it. It shows that currency internationalization is likely to strengthen the central bank’s independence as well. Based on these findings, this study argues that a central bank with weak monetary policy autonomy and low independence is more likely to support the internationalization of its country’s currency. These arguments are empirically verified, mainly by in-depth analysis of the case of the People’s Bank of China and the renminbi.

Chey, Hyoung-kyu. (2012) Theories of International Currencies and the Future of the World Monetary Order. International Studies Review, doi: 10.1111/j.1468-2486.2012.01104.x The international standings of currencies form a principal characteristic of the international monetary order, shaping the world economic and political system by influencing the economic and political relationships among countries. This paper provides a systematic review of the literature on international currencies, encompassing both economics and political science, with the aim of providing useful groundwork to help develop a better analytical framework for the study of international currency standing. In particular, this paper discusses the international currency concept, the benefits and costs of issuing an international currency, and the determinants of international currency standing. It also assesses conflicting prospects for the future of the US dollar as the world’s key currency, addressing the likelihoods of further internationalization of the euro and the renminbi, the dollar’s main potential rivals. It in addition calls attention to certain political economy factors as salient issues for the future study of international currency standing.

This paper finds that a country’s affinity with a foreign country has a positive effect on foreign direct investment flows from it to that country, by analyzing Japanese foreign direct investment outflows during the period of 1995 to 2009. A rise in affinity between countries is thought to enhance their mutual trust and as a result lower the transaction costs of economic activities between them, thereby helping to promote bilateral foreign direct investment flows. These findings imply that a rise in affinity among countries is likely to facilitate international economic integration., JEL Classification Codes: F2, Embargo Period 24 months, http://www.grips.ac.jp/list/jp/facultyinfo/chey_hyoung-kyu/

Since the 1997 Asian financial crisis and the launch of the European Economic and Monetary Union shortly afterward, a growing number of studies have considered the idea of a so-called Asian Monetary System, mostly adopting the European Monetary System as its model. The operational adjustment burdens in the European Monetary System were asymmetrically distributed, however, in particular between Germany and the other member countries. The emulation of such an asymmetric system in East Asia is not likely to be sustainable, due to the much lower support for regional integration there than was the case in Europe. For a future Asian Monetary System to be sustainable, it should be designed in such a way as to promote symmetry in the adjustment burdens arising from its operation. To this end, it may be desirable for the Asian Monetary System to employ an exchange rate and intervention mechanism that levies adjustment burdens largely on participant currencies deviating substantially from the average member currenc...

The recent global financial crisis has raised a number of important issues. This paper discusses five specific issues: first, macroprudential regulation, an issue related to the cause of the crisis; second, management of economic openness, an issue especially relevant for emerging market economies; third, diverse measures for coping with instability due to capital outflows, for example self-protection through foreign exchange reserve accumulation as well as international and regional cooperation; fourth, the future of the international monetary system, in particular the dollar-centred system; and fifth, the implications of the crisis for the economics profession.

In recent years, dynamic debate has arisen as to the desirability and feasibility of creating a monetary union in East Asia. While the debate has relied heavily on the theory of optimum currency areas, this theory has weaknesses in explaining the actual formation of monetary unions. At this point, political economy analysis appears to demonstrate stronger explanatory power. This paper provides a systematic review of the main developments in the literature on optimum currency area theory and in the political economy literature on monetary union. In addition, it addresses the feasibility of an East Asian monetary union, by applying the findings in these two academic strands to the region. It finds that even though formation of an East Asian monetary union may be to some extent feasible from an economic perspective, the region’s political situation does not appear favourable for the creation of one.

Why do countries that did not participate in the establishment of international standards converge on them in the absence of external coercion? The market-based perspective asserts that market forces enhance cross-national convergence on international standards. This paper challenges the market-based perspective, focusing on compliance with the 1988 Basel Capital Accord in South Korea and Taiwan. First, it argues that adoption of the Basel Capital Accord by these countries was mainly driven by their regulatory authorities’ concern about the potential risk of foreign market closure to noncompliant banks. Second, it demonstrates that enforcement by the two countries’ regulatory authorities was crucial in ensuring compliance. These findings suggest that national regulatory authorities are still key actors in voluntary convergence on international standards.

A central theme of much recent international political economy (IPE) scholarship has been the question of what determines compliance with international regulatory regimes.1 The contemporary debate ...

As the internationalisation of the renminbi has progressed rapidly in recent years, research on it has also grown considerably. However, most of this research tends to focus mainly on analysing it from the supply side, looking, for example, at China’s economic and political conditions and related policy measures. Meanwhile, the demand side of renminbi internationalisation remains underexplored. This study addresses this critical gap in the literature by providing an in-depth analysis of use of the renminbi in South Korea. It demonstrates that renminbi use in the country is still very limited in both the private and the public sectors. It also finds that neither sector has much intention of increasing its use of the renminbi in the near future, as its costs overwhelm its benefits. These findings suggest that, contrary to many optimists’ anticipation, evolution of the renminbi into a consequential international currency even in East Asia may not be an inevitable outcome for China, despite the country’s spectacular economic rise.

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.