International competitiveness and currency internationalization: an application to RMB internationalization

AbstractAbstractThis paper aims to explore the relation between international competitiveness and currency internationalization by employing an analytical framework and applying it to RMB internationalization. Our results reaffirm that economic size, financial market development and network externalities are keys in currency internationalization. We also find that international competitiveness is a potential determinant of currency internationalization. However, a more comprehensively and fully measured index of international competitiveness than the GCI is needed to investigate the potential relation between international competitiveness and currency internationalization. The RMB could become an international reserve currency that is larger than the Japanese yen and the British pound sterling, but still lags far behind the US dollar and the euro by 2035. Given the network externalities and historical experience of currency internationalization, however, it will be a long and bumpy process for the RMB to become an international currency, particularly an international reserve currency.HighlightsExploring the relation between international competitiveness and currency internationalization;Reaffirming economic size, financial market development and network externalities as keys in currency internationalization;International competitiveness is a potential determinant of currency internationalization;The RMB could become an international reserve currency by 2035;RMB internationalization will be a long and bumpy process.Keywords: International competitivenesscurrency internationalizationRMB InternationalizationChinaJEL Classification: F02F31F33O53 Disclosure statementNo potential conflict of interest was reported by the authors.Additional informationFundingThis work was supported by Research Start-up Fund for New High level Talent of Shenzhen City and Special Fund for Humanities and Social Science of Harbin Institute of Technology, Shenzhen, China.Notes on contributorsYuming CuiYuming Cui, Associate Professor at School of Economics and Management, Harbin Institute of Technology, Shenzhen, China. Dr. Cui worked at Harvard Kennedy School as an Asia Fellow (2020) and Fairbank Center for Chinese Studies of Harvard University as a Visiting Scholar (2021). His research areas focus on international finance and macroeconomics. Dr. Cui received his PhD degree in Economics from Waseda University, Japan in 2014.Lian LiuLian Liu, Research Associate at Asia Development Bank Institute (ADBI), Tokyo, Japan. Her research areas include international economics and East Asian economy. Dr. Liu received her PhD degree in Economics from Waseda University, Japan.Ke PengKe Peng, Associate Professor at School of Economics and Management, Harbin Institute of Technology, Shenzhen, China. Her research interest focuses on finance and international financial market. Dr. Peng received her PhD degree in Finance from University of Strathclyde, the UK.Correction StatementThis article has been republished with minor changes. These changes do not impact the academic content of the article.