Multiple Reserve Currencies and Renminbi Use

Posted: 14 Jun 2018

See all articles by Satyendra Kumar Gupta

Satyendra Kumar Gupta

Jindal School of Goverment and Public Policy, JIndal Global University

Ashima Goyal

Indira Gandhi Institute of Development Research (IGIDR)

Date Written: July 5, 2017

Abstract

We analyze prospects for the Chinese renminbi to become a major international currency, along with the US dollar, in a multiple reserve currency world. Analytical models on switching costs in networks and on currency choice under direct and indirect transaction costs are used to derive variables for empirical analysis. While network size and financial market depth (lower transaction costs) favor incumbents, changes in trade-related bargaining power and in currency volatility could favor newcomers. The models also point to political determinants affecting currency choice. We develop indices to quantify some of these. When the bargaining power index is used in estimation, it shows capital account openness and currency stability have to complement a rise in trade share for an aspiring reserve currency.

Keywords: Reserve Currencies; Network Benefits; Transaction Costs; Bargaining Power; Renminbi

JEL Classification: F33; F55; O53

Suggested Citation

Gupta, Satyendra Kumar and Goyal, Ashima, Multiple Reserve Currencies and Renminbi Use (July 5, 2017). Available at SSRN: https://ssrn.com/abstract=3187436

Satyendra Kumar Gupta (Contact Author)

Jindal School of Goverment and Public Policy, JIndal Global University ( email )

Sonipat
Sonipat
Haryana, 124 001
India

Ashima Goyal

Indira Gandhi Institute of Development Research (IGIDR) ( email )

Gen A.K. Vaidya Marg Santoshnagar
Goregaon (East)
Bombay 400065, Maharashtra
India
+91 22 28400920 (Phone)
+91 22 28402752 (Fax)

HOME PAGE: http://www.igidr.ac.in/~ashima

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