Jumpstarting an international currency

Bahaj, Saleem and Reis, Ricardo ORCID: 0000-0003-4844-9483 (2025) Jumpstarting an international currency. Review of Economic Studies. ISSN 0034-6527 (In Press)

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Abstract

While the USD dominates cross-border transactions today, a few other currencies are also used internationally. This paper shows that central bank policies that reduce the volatility of borrowing costs for foreign firms in domestic currency can trigger a jumpstart of the currency’s international status, because firms’ choices of the currency of their working capital complement their sales invoicing. Empirically, the creation of swap lines by the People’s Bank of China between 2009 and 2018 supports this theoretical claim. Signing a swap line with a country is associated with an increase in the probability that the country would use the RMB at all by 12%, and a four-fold increase in the value of the country’s RMB payments.

Item Type:	Article
Additional Information:	© 2025 The Author(s)
Divisions:	Economics
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HG Finance
Date Deposited:	28 Apr 2025 13:30
Last Modified:	28 Apr 2025 13:30
URI:	http://eprints.lse.ac.uk/id/eprint/128001

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