Beyond borders: Decoding the influence of economic development, money confidence, financial market, and purchasing power on currency internationalization
Zibin Cao, Weini Soh, Nazrul Hisyam Ab Razak, Bany Ariffin Amin Noordin
TL;DR
This study explores how economic factors like development, money confidence, financial markets, and purchasing power influence a currency's international use, offering policy recommendations for promoting currency diversification.
Contribution
The study introduces a novel mediation framework using purchasing power to explain the relationships between economic factors and currency internationalization.
Findings
Economic development and money confidence negatively affect currency internationalization.
Financial market and purchasing power positively influence currency internationalization.
Purchasing power partially mediates the relationships between economic development, money confidence, and currency internationalization.
Abstract
Due to dedollarization and deglobalization trends, countries are pursuing currency diversification to reduce reliance on the U.S. dollar and mitigate currency risks. The research on the drivers of currency internationalization still faces problems such as small sample sizes, fewer methods, and incomplete theoretical frameworks. This study aims to investigate the effects of economic development, money confidence, and the financial market on currency internationalization. It also explores whether purchasing power mediates the relationships between the first two exogenous variables and currency internationalization. The Partial least squares structural equation modeling (PLS-SEM) method is used to analyze secondary data from 9 of the 10 most used currencies (excluding the euro) from 2000 to 2020 to examine these relationships. The findings show that economic development and money…
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Taxonomy
TopicsGlobal Financial Crisis and Policies · Monetary Policy and Economic Impact · Fiscal Policy and Economic Growth