Currency Internationalisation: Analytical and Policy Issues
AbstractInterest in currency internationalisation among policy makers as well as the general public has intensified in recent years. One reason is a view that the global impact of the recent financial crisis has been intensified because of the dominant role of the US dollar in the international financial system. According to this view the system would be less prone to instability if international trade in goods and assets were denominated in a greater variety of currencies and if international reserve holdings were more diversified. Another reason is the perception that having an international currency is associated with significant benefits for the issuing national authorities. This raises the question whether there is a case for policy intervention by national authorities to promote the international use of their currency. This paper addresses this issue. It argues that authorities should not focus their primary attention on climbing the currency internationalization charts. Instead they should consider the pros and cons of policies and institutional changes that may pave the way for the private adoption of the currency in international transactions. The reason is that full internationalization of a currency will not come about unless a certain number of pre-requisites are met. Arguably the most important is that there be no restrictions on cross-border transfers of funds and no restrictions on third party use of the currency in contracts and settlements of trade in goods or assets, and no restriction on including assets denominated in the currency in private or official portfolios. In short, full internationalization of a currency requires full capital account liberalisation. Although there are gains from currency internationalisation, it is an open question whether public policy should attempt to promote it beyond establishing preconditions such as full capital account liberalisation, a deep and dynamic domestic financial market, a well-respected legal framework for contract enforcement, and stable and predictable macro and micro economic policies.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 312009.
Length: 15 pages
Date of creation: Oct 2009
Date of revision:
Contact details of provider:
Postal: 55th Floor , Two International Finance Centre , 8 Finance Street , Central, Hong Kong
Phone: (852)2878 1978
Fax: (852)2878 7006
Web page: http://www.hkimr.org
More information through EDIRC
Other versions of this item:
- Hans Genberg, 2011. "Currency internationalisation: analytical and policy issues," BIS Papers chapters, in: Bank for International Settlements (ed.), Currency internationalisation: lessons from the global financial crisis and prospects for the future in Asia and the Pacific, volume 61, pages 221-230 Bank for International Settlements.
- NEP-ALL-2010-05-02 (All new papers)
- NEP-CBA-2010-05-02 (Central Banking)
- NEP-IFN-2010-05-02 (International Finance)
- NEP-MON-2010-05-02 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Menzie D. Chinn & Jeffrey A. Frankel, 2008.
"The Euro May Over the Next 15 Years Surpass the Dollar as Leading International Currency,"
NBER Working Papers
13909, National Bureau of Economic Research, Inc.
- Chinn, Menzie & Frankel, Jeffrey, 2008. "The Euro May over the Next 15 Years Surpass the Dollar as Leading International Currency," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp08-016, Harvard University, John F. Kennedy School of Government.
- Barry Eichengreen, 2005. "Sterling's Past, Dollar's Future: Historical Perspectives on Reserve Currency Competition," NBER Working Papers 11336, National Bureau of Economic Research, Inc.
- Frankel, Jeffrey A., 2012.
"Internationalization of the RMB and Historical Precedents,"
10592469, Harvard Kennedy School of Government.
- Frankel, Jeffrey, 2012. "Internationalization of the RMB and Historical Precedents," Journal of Economic Integration, Center for Economic Integration, Sejong University, Center for Economic Integration, Sejong University, vol. 27, pages 329-365.
- Dong He & Robert McCauley, 2010.
"Offshore markets for the domestic currency: monetary and financial stability issues,"
BIS Working Papers
320, Bank for International Settlements.
- Dong He & Robert N. McCauley, 2010. "Offshore Markets for the Domestic Currency: Monetary and Financial Stability Issues," Working Papers 1002, Hong Kong Monetary Authority.
- Xiaoli Chen & Yin-Wong Cheung, 2011.
"Renminbi Going Global,"
Working Papers, Hong Kong Institute for Monetary Research
082011, Hong Kong Institute for Monetary Research.
- Cheung, Yin-Wong, 2011. "Renminbi Going Global," Santa Cruz Department of Economics, Working Paper Series qt2qn810hg, Department of Economics, UC Santa Cruz.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (HKIMR).
If references are entirely missing, you can add them using this form.