| Since the twentieth century, the US dollar still maintained its dominant status inthe International monetary system based on its large size of real sector and its highlydeveloped financial markets. But with the volatility of international financial markets,especially the frequent occurrence of the financial crisis,there emerged questionsabout the status of the US dollar, more and more people began to think about thefuture of the hegemony of the US dollar.On the other time, with the advancement ofthe international monetary system reform, major world currencies issuers have calledfor the establishment of a diversified international monetary system. Since the1990s,with the rapid development of China economy and international status rising, Chinamonetary authorities started free convertibility of RMB under current-account in1996, which opened RMB internationalization process, and promoted “theimprovement of the RMB’s international status” a widely debated hot topicacademically.In this context, this paper will use the methods of international politicaleconomy and international economics theory to explore the effects which thedevelopment of financial markets on the international status of the currency.In thisprocess, through the review process of the development of major internationalcurrencies, we summarized the important role of financial market conditions on theprocess of currency internationalization.And we focus on the development level andscale of financial deepening, the stock and bond markets to describes the importanteffects on international currency status.Based on the above theory, in this paper weues dollar, yen, pound, euro and Swiss franc five major international currencies’data (between1995and2012) to create a static panel data model for the currency’sinternational status empirical analysis. The results showed that the more prosperousfinancial market developments (including stock market trading, bond market, andthe degree of financial deepening), the country’s currency is more likely to bewidely accepted in international exchanges, increasing the opportunities of their use,and reducing transaction costs, further increasing international market demand forthe currency, so the higher the international status of the national currency. Theapplication of measurement methods in this section, the variables we selected arericher,and more reasonable, so it achieved an innovation on the theory and empiricalmethods of financial development impact on the currency’s internationalstatus.Finally, at the conclusion on the basis of earlier studies, we provide effectivestrategies to promote the rise of RMB’s international status from the perspective offinancial markets.To achieve these goals, this paper is divided into five chapters:Chapter1is introduction, in which background and significance of this paperare explained. At the same time, outline of this paper’s research ideas and frameworkand literature review are also given in this part.Chapter2is theoretical analysis. Combining related theories in finance,international economics and international political economics with conclusions aboutdifferent development processes of international currencies, role of financialmarket’s development on currency’s international status is discussed.Chapters3and4are empirical analysis. US Dollar, Euro, British pound,Japanese yen and Swiss Franc are selected as sample currencies and time period is1995-2012. Based on quantification of currency issuing countries’ degree offinancial development, econometric analysis of regression analysis, cointegrationanalysis and panel data analysis are used to discuss financial market’s impact on thecurrency’s international status. Chapter5is conclusion and policy recommendations. This chapter summarizesthe results of theoretical and empirical analysis and concludes role of financialmarket development on the currency’s international status. Finally, advice about howto promote the internationalization of RMB is given. |
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