Research On The Influencing Factors Of Regional Currency Substitution Along The "The Belt And Road "Initiative

China proposed the "Belt and Road" initiative to promote connectivity and economic cooperation with countries along the route.In the process of continuous promotion and construction of the initiative,the degree of economic integration between China and countries along the "Belt and Road" has become increasingly high,and the influence of RMB in the regions along the "Belt and Road" and neighboring countries has been significantly enhanced.The process of the widespread acceptance and use of the RMB is essentially the process of internationalization of the RMB currency.The theory of currency substitution is a hot spot in the research of currency internationalization.Currency substitution refers to the phenomenon that in a country or region,when the value of a foreign currency rises,people will abandon the local currency and use the foreign currency instead of the local currency.In other words,a foreign currency can replace the basic functions of money such as the medium of exchange of a country’s own currency.In the process of building the "Belt and Road" initiative,the phenomenon of currency substitution is manifested as: the use of diversified currencies in cross-border trade and investment,including RMB,US dollar,euro,Japanese yen,Russian ruble and other currencies.This will not only increase the exchange and use of multiple currencies,but also promote regional trade and investment.The study of currency substitution in regions along the "Belt and Road" can clearly understand the characteristics of currency use,acceptance and dependence on foreign currencies in currency exchange and international trade in regions along the route.This is of great significance to China’s promotion of RMB internationalization.This paper aims to investigate the factors that affect the adoption of the Chinese yuan as a substitute currency in the regions along the "Belt and Road".To achieve this goal,the study employs both theoretical analysis and empirical research.By exploring these factors,the study hopes to find a way to enhance the integrated development of the Chinese yuan in the "Belt and Road" regions,increase its usage in the area,boost its influence in the global financial market,and offer more currency options for the countries along the "Belt and Road".Ultimately,the research seeks to contribute to the overall success of the "Belt and Road" initiative by promoting economic cooperation and connectivity among the participating countries.First,this paper analyzes and sorts out the theoretical basis of currency substitution.This paper analyzes and summarizes the main viewpoints of theories such as the production function theory of money services and the marginal utility theory of money demand,and studies the applicability of various currency substitution theories in the regions along the "Belt and Road".The results show that the marginal utility theory of monetary demand is most in line with the actual economic and trade situation of the regions along the "Belt and Road",and has great reference value.This theory believes that fluctuations in interest rates,exchange rates and other factors will affect the currency replacement rate.Other currency substitution believes that in addition to interest rates and exchange rates,there are other factors that will have a certain degree of impact on the currency substitution rate.Therefore,further research and analysis of the specific influencing factors and their influencing mechanisms of currency substitution is needed.After combing the currency substitution process of major world currencies,it is found that the long-term healthy and stable development of the economy,a strong trade foundation,a stable currency value,a mature financial market and the long-term stability of economic policies are the basis for a country’s currency to achieve monetary internationalization.To sum up,the main influencing factors of the currency substitution rate can be summarized as:economic development level,exchange rate factors,interest rate factors,inflation rate,broad money supply,foreign trade,economic policies and regional differences.Through theoretical analysis,it is also found that the "Belt and Road" initiative will have a positive effect on RMB substitution,expand the scope and channels of use of RMB,help promote RMB to obtain international currency status and build an offshore RMB market system,and provide important opportunities and support for RMB.Secondly,based on the marginal utility theory of monetary demand,this paper uses the panel data of 28 countries along the "Belt and Road" from 2005 to 2020,uses the panel data model,and empirically tests the influencing factors of the currency replacement rate by using the real effective exchange rate,foreign trade dependence,broad money supply,interest rate spread,inflation rate,and GDP as the explanatory variables,and the currency replacement rate as the explanatory variable.Through the results of the full-sample analysis,it is found that the influence of each explanatory variable on the currency replacement rate is significant.However,in different regions along the Belt and Road,there are obvious differences in the relationship between the above explanatory variables and the explanatory variables.The results of regional heterogeneity test show that in East Asia and South Asia,there is a significant positive correlation between real effective exchange rate and currency replacement rate.In Central Asia and Central and Eastern Europe,there is a significant positive correlation between real effective exchange rates and interest rate spreads and currency replacement rates,and a significant negative correlation between broad money supply and money supply.In the West Asia and North Africa region,there is a significant positive correlation between real effective exchange rates,GDP and currency replacement rates;The total amount of foreign trade,money supply and interest rate differential have a significant negative correlation with the rate of currency substitution.Finally,based on the empirical conclusions and theoretical research conclusions,this paper puts forward the following policy suggestions: differentiated strategies should be adopted to promote RMB internationalization in different regions along the "Belt and Road";Monetary cooperation among countries along the Belt and Road should be strengthened and the process of RMB substitution should be accelerated;China should improve the financial market and build an offshore RMB center;Promote financial innovation and development,and enhance the status of RMB in trade settlement in regions along the "Belt and Road".