National power and currency internationalization amid increased geopolitical risk: nonlinear insights from PSTR model

Geopolitical risk events have historically influenced a country’s monetary dominance. Higher geopolitical risk strengthens the correlation between national power and currency internationalization, leading to nonlinear impacts. Using a panel smooth transition regression (PSTR) model, we identify and measure the nonlinearities that affect currency internationalization. Our study highlights the key factors involved and indicates that geopolitical risk can significantly amplify the impact of a country’s share of global GDP and exchange rate log-returns on currency internationalization.