Research On The Influencing Factors Of The International Currency Reserve Function Based On The Perspective Of Transaction Costs

After the reform and opening-up policy,China has experienced 40 years of rapid development.China’s comprehensive national strength has been continuously enhanced,and its political discourse power in the international arena has gradually increased.Since China began to promote RMB cross-border settlement in 2009,significant progress has been made in the internationalization of RMB.However,at present,risk factors that affect and threaten global economic and financial stability are also on the increase.Developed countries are obviously against the trend of globalization.Under such conditions,the prospect of RMB internationalization is facing some uncertainty.As one of the three functions of international currency,reserve function is the highest manifestation of currency internationalization.Therefore,it is of great theoretical and practical significance to study the influencing factors of international monetary reserve function.At present,China is the world’s second largest economy,the largest trading nation and the second largest foreign investor.But the proportion of RMB in international reserves is not commensurate with the huge scale of China’s economy and trade volume.Based on such background,this paper tries to explore the factors that influence a country’s currency to play the role of international reserve.Through theoretical and empirical analysis,this paper puts forward specific countermeasures to promote the role of RMB in international reserve.In the part of literature review,this paper firstly sorts out the influencing factors of the international currency reserve function,the theory of transaction cost and the relevant literature on the relationship between transaction cost and the international currency reserve function.Based on the practice of the development of international monetary system,this paper makes an international comparative analysis and studies the internationalization experience of pound sterling,dollar,euro and yen.Then it makes an in-depth summary and analysis of the current situation of RMB internationalization.On the basis of the above research,this paper analyzes the influencing factors of the international currency reserve function from the perspective of transaction cost.Specifically,this paper starts with three key factors that affect transaction costs(transaction uncertainty,transaction frequency and transaction asset specificity),and divides transaction costs into conversion costs,shortage costs and opportunity costs.Among them,the transaction uncertainty corresponds to the opportunity cost of holding international reserve currency,which is closely related to the currency value stability.The frequency of transactions and the specificity of the transaction assets correspond to the conversion cost and shortage cost of the reserve currency,which are closely related to the financial market liquidity corresponding to the currency and the supply and demand of the currency.Country with large economic scale,high volume of foreign trade and direct investment channels will provide its currency with large amount of supply and demand.Huge volume and high frequency of the external economic activity will provide better liquidity in the market for its currency,which will reduce the conversion cost and shortage cost of the holder of the currency.At the same time,this also is helpful for the country’s reserve function by promoting another two functions.The inertia of currency use is also an important factor affecting an international currency’s reserve functions.Due to the existence of network externalities,currencies with higher internationalization level will have lower currency conversion cost.In addition,from the perspective of shortage cost and conversion cost,the greater the depth and breadth of a country’s financial market,the richer its financial products are,the higher the transaction efficiency will be,the lower the shortage cost and conversion cost will be,the more likely other countries will choose this currency as a reserve currency.From the perspective of the opportunity cost of holding international reserve currency,the stability of the value of the international monetary can make other countries have full assurance of faith for the currency.Holding such currency as a reserve asset can lower the transaction cost of the country’s international reserves,and achieve the purpose of value preservation and appreciation.It is also conducive to mitigate the adverse impact on the domestic market prices in the process of clearing and rebalancing.In the empirical part,this article selects the dollar,pound sterling,euro and yen as four important international currency sample.Select global total proportion of GDP and global total proportion of foreign trade,CPI,exchange rate volatility,as well as the total market value of listed companies of the country’s GDP,the bond issuance as a share of the country’s GDP as seven factors used to study the main influencing factors of international currency’s reserve function.Through the analysis with static panels and the dynamic panel with the lagged variable,the results show that the size of the economy,financial market openness,foreign trade scale have significant effect on an international currency’s reserve function.The lagged variable(currency use inertia)also has a significant impact on the empirical results.Therefore,looked from the empirical results,currency use inertia is one of the factors that will affect an international currency’s reserve function.Based on the above theoretical and empirical analysis,in the countermeasures and suggestions part,this paper’s analyze in detail on the advantages and disadvantages of RMB’s international currency reserve function.This paper holds that China’s strong economic strength,large amount of foreign trade and foreign investment,and the relative stability of the value of the RMB against the domestic and foreign currencies are important advantages for the internationalization of the RMB its international reserve function.From the perspective of disadvantages,due to the inertia of international currency use,the US dollar will maintain its status as the world’s central currency for a long time.On the other hands,the development of China’s financial market is relatively backward,and the opening of China’s capital market is insufficient,which will have a great negative impact on the reserve function of RMB.Based on the above analysis,to help RMB improve its international reserve function,this paper puts forward three countermeasures:firstly,China should promote the cross-border trade and cross-border direct investment,effectively reduce the conversion cost and shortage cost,and enhance the international market demand volume of the RMB.By raising the RMB international pricing and settlement functions,RMB’s international currency reserve function will continuously be promoted;Secondly,we should constantly promote the development and opening of China’s financial market,improve the liquidity of RMB in the international market and reduce the transaction cost of RMB’s reserve countries.Finally,actively developing the offshore RMB market,improving the two-way circulation mechanism of offshore and onshore RMB and expanding the breadth and depth of the offshore RMB market will eventually improve the international currency reserve function of RMB.