Why is World Money World Money? A View from the Functions of Money

The literature on currency internationalization, with its focus on the essential attributes of an international currency issuer, is largely inadequate for explaining what causes the currency of a country to be adopted and to remain as world money. This paper argues that embedded within the well-known framework of the functions of money – as a medium of exchange, unit of account and store of value – are fundamental assumptions about how Economics defines and understands money. Drawing on conventional and Post Keynesian approaches, it demonstrates that current theories of currency internationalization, and questions of international money more generally, are embedded in underlying theories of money that are very specific about the process through which currencies achieve and maintain an international position. It also finds that a better understanding of the functional approach to money can bring greater theoretical clarity to the positions of various authors on questions of international money. At the same time, it argues that shortfalls in both the conventional and Post Keynesian approaches to money are inevitably also transposed to the international level. These need to be addressed before a more comprehensive theory of currency internationalization can emerge.