The Effect Of International Political Relation On Currency Internationalization

Since the 20 th century, the dollar has always been dominant in the international monetary system, and it has become the world’s leading currency. However, with the ongoing economic crisis and frequent fluctuation of the exchange rate in the international financial market, more and more countries began to think about the negative impact of dollars on the steady growth of the world economy. They began to look for the regional economic cooperation. For China, promoting the internationalization of the RMB is a definitely effective method to reduce the risk of all kinds. But, the development of the international monetary gradually exposed the inadaptability with the international political and economic order. That forced people to reflect the relationship between the existing international political and economic rules and the monetary internationalization, as well as the trend of international currency in the future.In particular, promoting the currency in the international market share is not only generated from the spontaneous market forces as current academic circles thinks, it is also related to the international political cooperation and conflict. Some of the early scholars elaborated that if a currency would become an international currency, its issuing country must possess strong political power in the world. As for one of the international political factor-the friendly relations between countries, whether it has impact on monetary international status has not been on system analysis. This paper is dedicated to supplement the neglect in existing literatures on the relationship between the monetary internationalization and international conflict or cooperation. We also research the direction of the RMB internationalization path. The RMB has not become a veritable world currency, despite the Chinese economy status significantly increased in the current. Although RMB as a currency has been circulated outside the China, our country is still a developing country. The internationalization of RMB is vulnerable to domestic economic development and international economic, political, environmental aspects, so it has many restricting factors. If the currency internationalization path selection is not correct, the process of RMB internationalization would be delay or even failure, which affects the operation and development of the local and abroad economy. Research of the influence of international political relations to the RMB internationalization has a strong theoretical and practical significance.First, this paper discussed the currency internationalization related research results. We introduce from the definition and the nature of the currency internationalization, in order to provide basis and make bedding for the effect of international political relations to the international economy. Next, we systematically elaborated the international institutional arrangements and historical review of bilateral relations and big powers relations, to lay the foundation for the following empirical research. In Chapter Four, the international political relations factors was added to the econometric model. The data of international bilateral relations is measured based on Tsinghua University database, it put complex political events into a series of units, which divided into various event types. We gave quantitative numerical values on detailed events on the dimension of conflict and cooperation. By building panel cointegration model, we analyzed the influence of the international relations of currency internationalization. Then in the five chapter, we first made discussions about the present situation of RMB internationalization, and emphasized the effect of foreign political relations to the RMB internationalization. Finally, according to the empirical results, we proposed policy recommendations aimed at promoting the RMB internationalization, especially about the different government policy strategy for currency internationalization.