Title page 1

Contents 4

ABSTRACT 3

1. INTRODUCTION 5

2. INTERNATIONAL CURRENCIES AND DATA 6

Three Functions of an International Currency 6

Computing the Economic Size of the Major Currency Zones 7

Computed Shares of the Major Currency Zones 8

3. TRENDS IN THE USE OF CURRENCIES FOR THE DIFFERENT INTERNATIONAL PURPOSES 9

Compositions of Currencies Used for the Different International Purposes 9

Correlations Between the Shares of Currencies Used for Different International Purposes 13

4. DETERMINANTS OF THE SHARES OF CURRENCIES USED FOR THE DIFFERENT INTERNATIONAL PURPOSES 15

Literature on the Determinants of the currency Compositions of Aggregate FX Reserves 15

The Estimation Model 17

Estimation Results 18

5. SCENARIO ANALYSIS FOR THE RMB 23

Simulation Procedures 23

Interpretation of the Simulation Results 26

6. CONCLUDING REMARKS 26

REFERENCES 29

APPENDIX I: DEFINITIONS AND SOURCES OF VARIABLES USED IN THE REGRESSION ANALYSIS 31

APPENDIX II: COMPUTATION OF THE ECONOMIC SIZE OF THE MAJOR CURRENCY ZONES 32

APPENDIX III: CONSTRUCTION OF THE FINANCIAL MARKET OPENNESS (FMO) INDEX 40

Table 1. Functions of an International Currency 6

Table 2. Correlation Coefficient Matrix for Each Major Currency and the Swiss Franc 14

Table 3. Correlation Coefficient Matrix for All Currencies and AE and EMDE Currencies 14

Table 4. Estimation of Currency Shares, ln(x/1-x), Without the Lagged Dependent Variable, for 1980-2021 19

Table 5. Estimation of Currency Shares, ln(x/1-x), with the Lagged Dependent Variable, for 1980-2021 20

Table 6. Estimation of the Major Currency Zone Share, ln(x/1-x), With and Without the Lagged Dependent Variable for 1980-2021 21

Table 7. Scenario Analyses for the RMB 25

Figure 1. Size of Major Currency Zones, % Share of World GDP, Including the Core Countries/Region, 1980-2023 8

Figure 2. Currency Compositions for Cross-border Bank Liabilities, FX Reserves, International Payments, FX Market Turnovers, and... 10

Figure 3. Shares of Major Currency Zones Formed by Peripheral Economies 12

Table AII-1. Frankel-Wei and Kawai-Pontines Estimation Results for India and South Africa 34

Table AII-2. Final Currency Weights Used for India and Africa, 1980-2023 37

Table AII-3. Estimated Size of Currency Zones for India and South Africa, 1980-2023 38

Table AII-4. Economic Size of Major Currency Zones, % Shares in World GDP, 1980-2023 39