"The Way to a Dominant International Currency: A Political General Theory and the Prospect of the Renminbi’s Rise"
This dissertation develops a theory of interstate monetary security to explicate what determines the role of a currency in the international economy. This theory underlines that even if a state has outstanding economic conditions, the international use of its currency will still be limited if other states are concerned about security threats. This is because cross-national monetary relationships can be exploited for political coercion in interstate disputes. Accordingly, at least one of the two political conditions below should be satisfied so that the currency of a state with strong economic conditions but also substantial security threats to other states can perform a critical international role. One is if the issuing state makes other states believe that it will not employ monetary coercion in major political disputes with them. The other is if other states are protected by defensive military alliances decreasing the likelihood of such political disputes.
I test this theory by drawing on a series of statistical analyses along with two historical case studies. For these statistical analyses, official data on cross-national monetary relationships are mostly kept confidential. Thus, I construct my own global dataset using an econometric method to estimate part of those relationships, covering the years from 1968 to 2007. Also, the historical cases under study are the challenges from the US dollar and the Reichsmark to the British pound’s superior role in the international economy before WWII. After these, I apply the theory to studying the rise of the renminbi (RMB), China’s currency. This study demonstrates that the efforts of the Chinese Communist Party (CCP) to survive have given birth to some institutional mechanisms conducive to the international use of the RMB.
This dissertation makes two important theoretical contributions. First, it incorporates more political factors into currency competition research dominated by economics today, providing a more comprehensive analytical approach. Second, it allows for a dynamic insight into the relationship between an authoritarian regime’s international competition and domestic political survival. For instance, there could be crucial outcomes if the CCP’s efforts to survive lead to a considerable increase in the international use of the RMB. This may threaten US hegemony through weakening the dollar’s supremacy in the international economy. As such, this could set off a fundamental change to the international system. Such a structural change may pressure the CCP to introduce more domestic reforms to adjust to China’s new position in the system, but it may also give the Party more resources to secure legitimacy.
This dissertation makes policy-oriented contributions as well. Some analysts, for example, hold that China’s economic growth will drastically boost the international use of the RMB in the near future, giving the state a chance to dominate East Asia. The interstate monetary security theory provides a relatively balanced view that highlights how the RMB’s future is affected by the level and mitigation of security concerns about China. That is, the prospect of this currency’s rise depends on whether China can keep the rapid economic development and the aforementioned institutional mechanisms in existence. Yet the theory also suggests that US military protection can attenuate those security concerns and embolden US allies to embrace the RMB. In this manner, the US may have to pursue a subtle balance between its security commitments to allies and the dollar’s international role.
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