Explaining Foreign Interest in China’s Global Economic Leadership: Bilateral Currency Swap Agreements
42 Pages Posted:
Date Written: August 15, 2018
Global leadership, by definition, requires followers. In contrast to claims that China uses its vast economic resources to pull foreign nations into its orbit, we argue that grievances with the current U.S.-led international order have also pushed foreign political elites closer to China. We evaluate this argument by analyzing foreign participation in China’s network of bilateral currency swap agreements – the largest network of its kind and an important component of the global financial architecture. While China’s main interest in the swap agreement initiative is to foster the internationalization of the renminbi (RMB), we focus on the incentives of the counterparties. We find that grievances about global financial instability are particularly important push factors. Specifically, we find that countries that have experienced more financial crises, more International Monetary Fund (IMF) programs, and more IMF conditions since 1990 are more likely to sign a bilateral currency swap agreement with China than nations that have been less exposed to these financial problems. We find no evidence that grievances about IMF governance motivate interest in China’s swap line program.
Keywords: central bank cooperation, china, People's Bank of China, currency swap agreements
JEL Classification: F3, F02, F33, F32, F42, F55
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