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Measuring Currency Power of States: Theoretical Assumptions and Methodological Problems. Case of RMB

Student: Gleb Pryymak

Supervisor: Maxim Bratersky

Faculty: Faculty of World Economy and International Affairs

Educational Programme: Double degree programme in International Relations of the NRU HSE and the University of London (Bachelor)

Year of Graduation: 2021

There are more and more opinions that the dollar's supremacy is coming to culmination. The global financial crisis of 2008, reckless recent behaviour of the US and increasingly complex geopolitical and economic situation have heightened fears about destructive over-reliance on the US dollar. Also, notion of currency power has started to gain increasing attention due to ability of currency to be a means of economic statecraft in a globalized world. Therefore, it becomes interesting to study the issues of internationalization of the Chinese yuan as a dollar’s and euro’s alternative. To fulfil the task, relevant theoretical and methodological apparatus was devised. Currency power internationalization capabilities that consist of political and material factors were analysed. Position of yuan in currency hierarchy was determined through currency power index and the prospects of substitution of dollar and euro with yuan as the major reserve currency were discussed. This analysis was based on statistical evaluations as well as on in-depth comparison of United States, China and Eurozone. Results of the analysis suggest that both material and political factors are important for currency internationalization as well as none of reviewed factors are alone sufficient for an outcome. The index gap between China and US is shrinking. However, in political sphere China scores far behind other countries with “reserve” currencies. It makes aggregate value of China below all examined issuers: USA, Eurozone, Japan, UK, Switzerland, Canada. Even the euro, having very comparable index values with that of dollar, is approximately three times less internationalized than US dollar. An in-depth comparison of yuan with dollar and euro points out that China is likely to outperform in GDP per capita growth, increase in number of patents, rise in market capitalization and bond market size, military expenditures over next 5-10 years. However, this might be still not enough for China to compete on par with holders of major dominant currencies as USA and Eurozone.

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