International Currency Research Articles

No Longer Neutral: The ECB’s Geopoliticization of the International Role of the Euro

While the euro has, since its creation, been the world’s second most important currency, the ECB has long depoliticized the international role of the euro by proclaiming a neutral stance. However, as this article explains, since 2019, the ECB has embraced currency internationalization and framed the issue in geopolitical terms. This policy change reflects a response to a changed international political environment after 2018 and it has led the ECB to seek closer political coordination regarding external economic policy. As the international role of the euro has become a concern for the EU’s broader geoeconomic turn, it may, however, become difficult for the ECB to reconcile its political independence with its more geopolitical view of currency internationalization.

The international currency system: New challenges and opportunities in the context of global changes

The international currency system: New challenges and opportunities in the context of global changes

Evaluating the sophisticated digital assets and cryptocurrencies capacities of substituting international currencies in inflationary eras

This study investigates the dynamic nexus that major international currencies (US dollar, Euro, Japanese yen) exhibit with cryptocurrencies and highly innovative digital money (DeFi and NFT assets) during inflationary periods such as the Russia-Ukraine conflict (from 14 December 2021 until 1 March 2024). The Quantile Vector Autoregressive methodology as in Cunado et al. (2023) and daily data are adopted to investigate the net joint extended dynamic connectedness and network connectedness at lower and upper quantiles. Conventional international currencies act as hedgers against shocks while major cryptocurrencies are only modest generators with Ripple being an influential absorber of effects. DeFi mainly serve for counteracting losses from conventional investments in bear or bull markets and Maker is the most prominent generator of spillovers while NFTs mostly rely on a few very strong leaders –Gala being by far the strongest- to have an impact, imitating Bitcoin in the early cryptocurrency era.

Особенности торговой политики Китая: текущее состояние и направления развития

This article analyzes the current state, main instruments, and directions of development of China's trade policy in the context of the confrontation between the two global economic leaders, China and the USA. Understanding the meaning that China embeds in the concept of "trade policy" will enable Russia to perceive the logic of China's decisions and effectively build cooperation with China in the economic sphere and the related ones. The aim of this study is to identify the peculiarities of China's trade policy. To achieve this, the article examines the main indicators and instruments of China's trade policy, considers the current viewpoints of Chinese economists on trade policy, and analyzes activities concerning its implementation. Particular attention is given to the methods China uses to increase its influence in the global economy. The findings demonstrate that through its trade policy, China aims not only to enhance its economic power but also to shape new global rules and standards, reflecting its aspiration for leadership in international economic relations. China’s tariff system and the enforcement of non-tariff measures effectively protect its domestic market from foreign competition and encourage investments in the development of competitive high-technology production on the global market. The article shows that in China, the concept of "trade policy" encompasses a broader set of tools and measures than the commonly accepted tariff and non-tariff measures. Within its trade policy framework, China addresses a range of tasks, from the internationalization of the national currency to uniting developing countries and gaining priority in setting technical standards for goods and services. It is shown that China has been working in this direction for several decades, specifically since the early 2000s.

International Currency and Commodity Market

International Currency and Commodity Market

EFFICIENCY OF MONETARY POLICY IMPLEMENTATION AS A BASIS FOR CENTRAL BANK STABILISATION POLICY UNDER MARTIAL LAW (UKRAINIAN AND ISRAELI PRACTICES)

The purpose of the paper is to summarise and present the anti-crisis practices of a central bank during martial law in the country, based on the experience of the National Bank of Ukraine and the Bank of Israel. The research methodology is based on an analysis of reports, guidelines, statistical data, scientific articles, legislation bases, and other relevant materials. One of the methodological aspects of this study is a comparison of the knowledge acquired about the regulations implemented by the two central banks after the introduction of martial law in the countries. The objective is to identify potential lessons learned for the banking regulations of Ukraine and the State of Israel. The results of the study show that the practical implementation of stabilisation measures by central banks is crucial for achieving financial stability of the state both during and after wartime, as well as the ability to predict possible deepening of crises and minimise their consequences. The tools and methods used by these central banks differ. In particular, the NBU's main monetary policy instrument was foreign exchange interventions, while the BoI actively used the key policy rate. The proper formation of international currency reserves and the possibility of using them during a war-related crisis is critical for both countries. This fact confirms that crisis management has different types of scenarios. Each anti-crisis scenario is unique. This paper highlights the practical need for interaction between monetary and macroprudential policies of the central bank in wartime. It demonstrates various combinations of methods and instruments of the central bank's monetary policy. This study also shows the interdependence of the economies of these two countries. Practical implementation. This analysis provides insight into the anti-crisis activities of central banks during unpredictable periods in a country's life, namely, during martial law. At the present stage, banking systems do not often face the challenges of war. Therefore, studying each case is important for improving theoretical knowledge and deepening practical research. Value / Originality. The author of the study collected the experience and practices of stabilisation activities of the central banks of Ukraine and Israel during the war.

Currency Internationalization, payment infrastructures and central banks: An institutional analysis of renminbi internationalization

This study explores the role of central banks in designing cross-border payment infrastructure as part of a broader agenda of currency internationalization, focusing on the Chinese experience from 2008 to 2023. Based on primary data- including descriptive statistics and interviews with senior officials from the People's Bank of China and staff from Chinese commercial banks – and triangulating information from secondary literature and official documents, the article traces the evolution of the renminbi's cross-border payment network comparing these developments with the early internationalization stages of the U.S. dollar. China's strategy is characterized as 'imitate and innovate,' where the renminbi's payment network development mirrors, to some extent, the institutional frameworks underpinning the dollar's global use. However, it also exhibits notable differences in public sector involvement and pace of development. This comparison indicates that, for late- industrializers, central bank plays a more pronounced role in jumpstarting a currency internationalization process. Moreover, this article also contributes to the international currency literature by demonstrating how payment infrastructures can aid in enhancing a country's external resilience through currency internationalization, without necessitating the complete liberalization of the capital account.

A Time Series Study of Financial Sector Development and Original Sin in Nigeria

This study examined financial sector development and original sin in Nigeria financial market. Time series data was sourced from Central Bank of Nigeria Statistical Bulletin from 1990-2023. Original sin measured by Nigeria external debt per exchange rate, Capital market development as market capitalization to gross domestic product, Foreign exchange market as variation in naira exchange rate per US Dollar, banking sector development as percentage total bank assets to gross domestic product, money market development as insurance total assets to gross domestic product, Money market development as value of money market instrument to gross domestic product. The study employed descriptive statistics and multiple regression models to estimate the relationship that exists between the dependent and independent variables. The null Hypotheses (H0) were tested at 0.05 level of significance, Ordinary Least Square (OLS), Augmented Dickey Fuller Test, Johansen Co-integration test, normalized co-integrating equations and parsimonious vector error correction model were used to conduct the investigations and analysis. The study found that 57.0% variation on original sin can be traced and explained by variation on the independent variables as formulated in the regression model. However, the F-Statistics and the F-probability justifies that the model is significant and adequate in explaining variation on the dependent variable. The β coefficient shows that capital market development have negative effect on original sin, foreign exchange market have positive effect on original sin, banking sector development have negative effect on original sin, insurance sector development and money market development have positive effect on original sin. From the findings, the study concludes that the independent variables determine positively and negatively original sin in Nigeria. We recommend that the need for policies to deepen the capital market as this can cushion the effect of the negative effect of external borrowing and domiciled in Nigeria currency rather than international currency. There should be institutionalized policies to enhance the value of the naira against other international currencies as this can reduce the pressure of exchange rate variation in international debt and international monetary environment. Public expenditure should be directed to the productive sector of the economy as this can enhance the productive capacity of the economy and reduce the negative effect on balance of payment and other macroeconomic variables. Policies should be advanced to reduce external borrowings; this can reduce the debt burden and reduce the incidence of original sin in the financial market.

Chinese currency exceptionalism: The curious internationalisation of the renminbi

AbstractThe People's Republic of China (PRC) lacks the macroeconomic conditions to internationalise its currency, the renminbi (RMB). Despite tight controls on capital markets in China, the international use of the RMB has increased significantly with the RMB becoming the fifth most used currency in global trade and financial markets. We argue that the internationalisation of the RMB has followed an unusual process, differing from the more typical features depicted in the literature on currency internationalisation. The RMB has internationalised despite the reluctance of the Chinese government to liberalise the country's current and capital accounts and its financial market. We argue that the investment role of money—overlooked or downplayed in this literature—is the main driver of RMB internationalisation. The Chinese government has created specific investment channels for non‐Chinese investors that allow a controlled flow of capital to enter China's securities markets. The major players promoting the international use of the RMB are Western banks, the investment fund industry and financial services firms that have included Chinese securities in their indices. In the absence of structural conditions to expand the RMB's international use, we suggest that agents matter the most in this phase of limited RMB internationalisation.

Corporate Debt Structure with Home and International Currency Bias

Corporate Debt Structure with Home and International Currency Bias

Financial development, money demand, and currency internationalization: based on a multidimensional globalization perspective

Current research on measuring currency internationalization has important implications for effectively examining the scope of currency internationalization among emerging economies. We examined the effects of countries’ financial development on their currency internationalization from a multidimensional globalization perspective. Using imbalanced panel data from 167 countries spanning from 1970 to 2021, we constructed a comprehensive indicator for measuring the currency internationalization process. Our findings highlight the significant role of financial development in promoting currency internationalization, particularly under high levels of globalization. The results reveal considerable differences in the impact of financial development between emerging markets and developed economies. Further, globalization of trade and finance were found to be important factors restricting currency internationalization. Thus, this study explains the phased development of currency internationalization from a globalization perspective.

Currency internationalization with Chinese characteristics: Is capital‐account convertibility required for the renminbi to acquire reserve‐currency status?

AbstractIt is widely assumed that the renminbi (RMB) cannot acquire a meaningful place in central bank reserve portfolios without full liberalization of China's capital account. We argue that the RMB can in fact develop into an international reserve currency in the absence of capital‐account convertibility. Trade and investment links can drive use despite limited access to Chinese financial markets. But this route to currency internationalization requires policy support. China must provide access to RMB through loans and the People's Bank of China (PBoC) currency swaps. It must ensure the convertibility of RMB into US dollars in offshore markets. It must provide RMB services at a stable and predictable price. Currency internationalization without full capital‐account liberalization thus requires the RMB to be backed by dollar reserves, which the PBoC consequently will continue to hold and use. Hence, we do not foresee RMB internationalization as supplanting dollar dominance.

Monetary sovereignty and the ‘Invisible Leviathan’: the politics of Marx’s theory of money

A debate has recently emerged in Heterodox Economics and Political Economy on the nature of monetary sovereignty, and whether it can be democratised and wielded to address the social and environmental catastrophes of our age. While Modern Monetary Theory understands monetary sovereignty to be relatively unconstrained, post-Keynesian, Structuralist and Critical Macro-Finance approaches point to various external limits on states’ abilities to govern money – from the international currency hierarchy to the offshore nature of money creation. This article evaluates this debate in light of Marx’s monetary theory. Under capitalism, money constitutes the social adhesive of a world of privatised production and mass dispossession, which conjures an anonymous, competitive logic that Marx terms the ‘law of value’. To function in this way, money must be underpinned by an historically novel form of state sovereignty. The state must both back money with its coercive powers and insulate monetary governance from popular forces, or else risk losing the confidence of the profit-driven private actors upon which money relies. Yet in exercising its sovereign capacity to govern domestic and international money relations, the state inadvertently reproduces the law of value on a global scale – an ‘Invisible Leviathan’ that subordinates states to its dictates. Contra the Heterodox literature, then, monetary sovereignty is not a vehicle for radical democracy or social/environmental justice, nor is it simply constrained by external limits. Instead, monetary sovereignty is innately a practice of depoliticisation that unwittingly produces a global logic of economic domination that binds states’ hands.

Оптимизация расчетов по экспортным операциям в национальной валюте в современных геополитических условиях

The financial security of enterprises in modern geopolitical conditions is negatively affected by political and financial sanctions imposed on the Russian Federation. In modern conditions of a rather aggressive exchange rate policy of the Bank of Russia, which ensures the containment of the national currency exchange rate and has a direct impact on the receipt of negative exchange rate differences in the process of export operations of domestic enterprises, it is necessary to improve settlement measures when conducting foreign economic activity. The purpose of this study was to develop operations to optimize settlements for export transactions in national currency. The subject of the study is the economic relations that arise in the process of settlements for expert transactions when carrying out foreign economic activity in modern geopolitical conditions. As a result of the study, scenarios for reducing the role of the dollar in international payments and reserves are reflected, and changes in the field of exchange control are studied. An assessment of the financial results of the enterprise for individual contracts was made due to the reflection of negative differences caused by fluctuations in the exchange rate of international currencies and the strengthening of the ruble. The effect of paying for exports in rubles is analyzed using the example of large existing enterprise contracts. A payment scheme for the enterprise’s exported products was developed and proposed by switching to payments in national currency. It was proved that the transition of settlements with foreign buyers in rubles reduces the risk of fluctuations in the exchange rate of international currencies and contributes to the strengthening of the ruble exchange rate while increasing the economic benefits of the enterprise. The results of the study can be applied to the practical activities of not only an individual enterprise but also to the activities of other enterprises exporting products.

Can RMB internationalization mitigate U.S. monetary policy spillovers?

This paper examines the determinants of U.S. monetary policy spillovers on China's interest rates and the buffering effect of RMB internationalization from the perspective of currency internationalization. Empirical results show that U.S. monetary policy heavily impacts China's market rates and short-term rates, with less effect on policy rates and longer-term rates. The significant influence primarily stems from altering in short-term market expectations. RMB internationalization mitigates these shocks by reversing short-term expectations, thereby dampening U.S. monetary policy spillovers and providing a buffer. These insights offer valuable guidance for China in managing the monetary policies shocks from major economy.

The Story of De- dollarization and Internationalization of the Chinese Renminbi

In recent times, numerous commentaries have written about de- dollarization. We analyse the factors which are contributing to de- dollarization. On the economic front, there is reduced fiscal and financial capacity of the US economy that can strain economic trust in the dollar. The internationalization of the Chinese currency is another factor. Additionally, a lower forecast for the world economic growth outlook, a higher debt financing in the United States, and a war in Europe are also leading to central banks around the world buying more gold and reducing investment in the US treasury bonds. While these factors may lead to reduced demand for dollars and increase the use of alternate international currencies, including digital currencies, we argue that dislodging the dollar as a global anchor currency is at best going to be restricted by economic and geopolitical reasons. JEL Codes: E42, F33, F34

Impact of RMB internationalization on China's competitiveness in financial services trade based on the VAR model: Evidence from China-US.

An increase in a currency internationalization levels can positively impact its credibility in international economic activities, and expand the effective demand and optimize the supply structure for the country's financial service trade. In this way, a state can improve its financial service trade competitiveness in the international market. This study builds a vector autoregressive model based on time-series data of China-US financial services trade from 2010 to 2021, analyzes the impact of different quantitative indicators of RMB internationalization on this trade from the impulse response results, and validates the conclusions using various inspection methods. The results show that the increase in RMB internationalization helps to narrow the China-US financial services trade balance, but with a significant lag. And this effect is heterogeneous in different dimensions, demonstrated by the fact that the development of overseas RMB securities business is more important for the level of RMB internationalization to narrow the China-US financial services trade balance. Finally, among the specific measures to improve its financial services trade, China should focus on developing the international competitiveness of the traditional RMB deposit and loan financial sector, while the competition in the overseas market for high value-added financial businesses must also not be neglected. Furthermore, China needs to implement more targeted RMB internationalization development policies at different levels in the future to provide high-quality financial services to the rest of the world and aid in the economic recovery of the world in the "post-pandemic" era.

Wilhelm von Humboldt’s theory of Bildung as a moral conception of the good life

While the concept of Bildung has acquired international currency in educational and philosophical studies, its moral implications have been obscured by existing educational accounts. I present the moral implications inherent in the term through specific reference to the early works of Wilhelm von Humboldt. In contrast to previous scholarships, where Humboldt’s theory of Bildung has been deployed for drawing on the account of the true end of the human being and the inner process of interaction between the self and the world, I draw on Bildung as a moral conception of promoting a good life for others. To illustrate this conception, I (a) demonstrate the basic structure of Humboldt’s theory of Bildung by examining its four core components, (b) reconstruct Humboldt’s notion of virtue balanced state of various faculties as a moral ideal (c) consider Humboldt’s philosophical historiography to illustrate how Bildung can be mediated at individual and collective levels, and (d) present the concrete forms of the obligation to promote the good lives of others in his anthropological writings.

Contagion and linkages across international currencies

This paper examines dynamic linkages among international currencies in the face of several turmoil episodes including the global financial crisis (GFC), eurozone sovereign debt crisis (ESDC) and the recent COVID-19 pandemic. We utilize weekly data from August 2005 till December 2022. Our empirical strategy consists of identification of crisis periods using a Markov-switching VAR, followed by estimation of the dynamic conditional correlations using an ADCC-GARCH model and testing for the impact of the crises using a regression model with robust standard errors. We compare impact of the episodes on the dynamic correlations across the currency pairs. Our findings suggest that correlation between developed economy exchange rates increased significantly during these episodes implying existence of a contagion effect. While significant negative correlation coefficients were observed across all pairs with Japanese Yen during GFC and ESDC, indicating flight to quality. We analyse factors that may be responsible for changes in co-movement of the currencies during the study period and find that financial stress, emergence of the pandemic and geo-political risk have a significant role to play.

SYSTEMIC ENDOGENOUS AND EXOGENOUS HAZARDS TO MODERN GLOBAL MONETARY AND FINANCIAL STABILITY

This article explores the systemic endogenous and exogenous threats facing global monetary and financial stability amidst escalating geo-economic fragmentation. It critically examines the evolving dynamics in the dominance of traditional currencies, particularly the US dollar, in light of the emergent roles of the euro and the yuan, contextualised by global financial interdependencies and rapid advancements in digital technology. The study underscores the traditional criteria for an international currency – including economic stability, openness to trade and capital, and the depth and liquidity of financial markets – and supplementsthese with the contemporary necessity for institutional robustness. A thorough literature review reveals vulnerabilities within the global banking system exposed by recent stress tests, highlighting the fragility of banking liquidity. It also examines the impacts of geopolitical tensions and rapid technological transformations, such as the effect of social media on financial markets and the swift movement of capital. The discussion extends to the implications of geopolitical fragmentation on global liquidity and economic stability, emphasising the critical need for robust preventive measures and a regulatory framework adaptable to evolving financial threats. The core findings of this research emphasise that effective regulatory reforms aimed at enhancing financial stability could alleviate the volatility of capital flows and diminish systemic risks, thereby reinforcing the status of certain currencies as international reserves. The paper posits that for a currency to qualify as an international reserve, it must possess assets that ensure value stability and exhibit minimal price impact during financial disruptions. Methodologically, this study employs a blend of theoretical and empirical approaches, merging quantitative and qualitative analyses to address its research objectives comprehensively. Given the current global financial uncertainties and shifts in the international currency arena, this paper is crucial for policymakers, financial analysts, and academic researchers engaged in the discourse of international finance.