The Analysis Of Factors Affecting The International Status Of Currency

In nineteenth century, British completed the first industrial revolution, with its rapid economic growth and colonial expansion, the UK has become an powerfully economic country, while the pound has also become a leading international currency. Twentieth-century American economy economy gradually grow, after World War II, Bretton Woods system established, which laid international role of the dollar, the United States became a power country in the world.1980s Jamaican system established, which made the monopoly status of the dollar be challenged, the birth of the euro in 1999 impacted on the US dollar, and the yen and other currencies developed, the International Monetary gradually diversified. outbreak of Asian financial crisis in 1997 and outbreak of the global financial crisis in 2008, giving a huge impact on the economy of countries, the financial crisis made people realize that Fed formulated monetary policy according to the benefits of the United States, many countries only in a passive, so the status of the dollar was questioned. As the leading international currency, how long can the dollar maintain its hegemony, which is many scholars concern today. While international currency is diversified, but shake of the dominant international currency must experience a long process. In this international context, China’s rapid economic development makes China became the world’s second largest economy, the RMB cross-border settlement is also expanding, but the the degree of internationalization of the RMB does not match the identity of China’s second-largest economy. How to promote the yuan’s international status,which becomes a topic to many scholars.Based on the current literature and theory, this paper made a theoretical analysis and correlation analysis for relevant variables before the study. In the variable selection, the share of the national currency of the world’s foreign exchange reserves measures the currency’s international status, while this paper uses the economic strength, the depth and breadth of the financial market, exchange rate volatility, inertia, and other factors to do empirical research on monetary reserves. Among them, the country’s GDP and export trade reflects the economic strength, Foreign banking assets and debt issuance reflects the depth of the financial market breadth,exchange rate volatility measures the degree of monetary stability, the first-order lag variables of the currency reserves representing inertia, other economic factors included interest rates and inflation. Samples are quarterly data from the second quarter in 1999 to the third quarter in 2014, this paper study five country, they are the United States, the euro area, Japan, the United Kingdom and Switzerland. In the empirical analysis, this paper first uses panel analysis to study the important factors which affect international currency status, then we use the time series analysis to study separately about the currency’s international status factors situation of five countries (regions). This paper adds financial crisis as a condition, then uses dummy variables and the interaction terms to observe changes about factors in the wake of the financial crisis.According to the panel analysis, the greatest impact of the currency’s international status is the historical inertia, followed by economic strength, the breadth and depth of financial markets is also an important factor, exchange rate volatility, interest rate and the inflation rate are not obvious. Factors about currency reserves do not change obviously after the financial crisis. Based on time series analysis, the factors affect the status of currencies differently. Generally, inertia, economic strength and financial markets are the main factors.US dollar and the euro as the two major international currencies, the British pound as the long history of international currency, the inertia are large. Yen as an international currency has not a long history, the inertia effect is not prominent, CHF inertia is also small. US and Japanese economies of scale and trading are powerful, the euro area and the United Kingdom’s economic strength is also prominent, they all affect the reserve currency. From the point of view of financial markets, the US and UK financial center is very well developed, They affect its currency reserves. financial markets in the euro area affect euro reserves. Japan’s main indirect financing results that banks influence yen reserves more. Regardless of the economic strength and financial markets, the Swiss have a large gap with other countries(regions),so the impact of economic factors is relatively small.Exchange rate volatility, interest rates and inflation rates more or less affect the currency’s international status, but the influence of these variables is not great.After the financial crisis, in addition to Japan, the effect about the inertia of the other four countries (regions) is weakened. The financial crisis spreads to the whole world, the market decline, market volatility increases, the banking liquidity tightens, market confidence has been hit by the financial crisis, so people pay the financial market more attention, financial markets effect the currency reserves share. On the other hand, after the financial crisis, the effects of the historical inertia on the reserve currency weaken, a big reason is that people pay more attention to the financial market. Finally, according to the results of empirical research, we Put forward relevant policy recommendations about the internationalization of the RMB., which have a significance for the internationalization of the RMB.