Who Are the First Users of a Newly-Emerging International Currency? A Demand-Side Study of Chinese Renminbi Internationalization

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.