The political economy of internationalization of emerging currencies; An analysis of the trends and consequences of the internationalization of the yuan

Document Type : Original Article

Authors

1 Ph.D. candidate in International Relations, Department of Political Sciences, Faculty of Administrative Science and Economics, University of Isfahan, Isfahan, Iran

2 Associate Professor of International Relations, Department of Political Sciences, Faculty of Administrative Science and Economics, University of Isfahan, Isfahan, Iran.

3 Associate Professor of Economics, Department of Economics, Faculty of Administrative Science and Economics, University of Isfahan, Isfahan, Iran.

Abstract

Introduction: With the remarkable rise of China's economy in the 21st century and its unparalleled role in commercial and financial exchanges, the internationalization of the Chinese yuan has become one of the primary indicators of China's emergence as a significant political and economic power in the global order. As major challenges confront the dominance of the U.S. dollar on one hand and China’s ascending position in the global power hierarchy on the other, new debates have emerged regarding the potential of the Chinese currency—the yuan or renminbi—to become an international currency in academic and policy-making circles. Regardless of whether this internationalization is feasible, one thing seems certain: the consequences of such a development. The circulation of a currency such as yuan on the international stage, its status as a financial intermediary, and its transformation into a store of value are influenced by both political foundations and power dynamics. This article aims to explore the trends and consequences of the yuan's internationalization, taking into account the uncertainties within China’s political and economic system, and to answer the question of what consequences might arise from the yuan's internationalization in the context of political and economic uncertainty.
Methods: This article adopts the uncertainty approach as a hypothesis and employs a descriptive-analytical and exploratory method. It posits that the internationalization of any emerging currency, including the yuan, requires a reduction of uncertainty in both political and economic domains. If these uncertainties are understood and managed, the internationalization of the yuan will be facilitated; otherwise, it will face significant challenges. The article assumes the yuan's internationalization as a given trajectory and does not aim at future forecasting. Instead, it focuses its analysis on the potential consequences by drawing on the historical experiences of more established and widely used currencies in the international monetary system, such as the U.S. dollar, within an analytical framework.
Results and Discussion: The present article, assuming the future internationalization of the yuan within the international monetary system, identifies the consequences of political uncertainty in areas such as democratic reforms, China's role as a responsible power, its increasing influence in the Global South, and its portrayal as a major power. Economic uncertainty is discussed in terms of factors such as the adjustment and reform of China’s political-economic structure, changes in government-led price setting, challenges to the U.S. dollar sanctions regime, and the strengthening of Chinese economic institutions.
Conclusion: The findings of this research show that the internationalization of a currency primarily depends on the economic capacities of the country that issues it and, secondarily, on the trust it commands from other countries. Despite the fact that, according to available statistics, the Chinese yuan ranks below traditional currencies such as the dollar, pound, euro, and Japanese yen in terms of international exchange, its rising trend indicates increasing internationalization. This process will undoubtedly be influenced by China's economic capacities. To reduce uncertainty and enhance predictability in the domestic environment, democratic reforms and greater economic and institutional transparency are necessary. Additionally, in the international arena, China must assume greater responsibility for global issues and work towards a positive portrayal of itself as a major power in the Global South, particularly in addressing global challenges.

Keywords

References

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