The Evolution Of The International Reserve Currency And Influencing Factors Analysis

There are mainly four international reserve currencies in the current internationalmonetary system, the US dollar, Euro, Japanese Yen and the British Pound. Given thecurrent share of the four major currencies in the international monetary system, thedollar is undoubtedly worthy of the “Center Currency” title, hence without exceptionits dollar-dominated monetary system is also dollar-oriented single currency monetarysystem. However, with the advancement of the global trend of economic integrationand deeper understanding to the international monetary system in the post-crisis era,today’s international monetary system is gradually evolving towards a morediversified direction.This paper firstly introduces the current status of the international monetarysystem, analyzes the shortcomings of dollar-oriented single currency system. Basedon this ground, the factors influencing currency internationalization are discussed, thekey to which is to examine whether those factors can exert certain influence on thecurrency’s stability, profitability and size of transactions. The factors affectingcurrency internationalization respectively are the gross economic output, foreign tradescale, development level of financial market, political and military influence of thecurrency-issuing country and path dependence, etc. And then, this paper selected theGDP growth, current account percentage of GDP and exchange rate volatility threefactors to build a panel data model to do an empirical analysis of the change in theshare of international reserve currencies. And the result proved these three factorshave significant effect on the change of the international currency reserve share.Through theoretical analysis and empirical test, this paper finally raises someopinions on the international monetary system reform. Firstly, the existinginternational monetary system should not be overthrown completely and the status ofdollar in the current system cannot be shaken in the near-come future. The reform ofinternational monetary system should move towards the direction of diversificationand meanwhile IMF should better position itself to play a greater role in the existinginternational monetary system. Secondly, regarding the internationalization of RBM,it’s far not enough for the Chinese government to just merely have the desires, it alsorequires the selection and recognition of the participants of the international financialmarket.