Glossary
Multipolar international monetary arena / system ( IMS ) means that many different currencies are important worldwide , promoting fairness , stability , and facilitating international cooperation . In contrast , in monopolar IMS involves only a single dominant currency for international trade and financial transactions .
Monetary stability means that the value of money remains mostly constant over time , allowing people to make purchases without worrying about prices changing too much .
Currency internationalization refers to likelihood that a specific currency can become widely accepted and used as a reserve currency for international trade and transactions , and as a trusted store of value .
Fuzzy logic is based on the observation that people often make decisions using imprecise and nonnumerical information . Fuzzy models or fuzzy sets are mathematical means of representing vagueness and imprecise information , hence the term fuzzy .
Reserve currency refers to a widely accepted , usually a fiat money that many countries hold as part of their foreign exchange reserves , and people worldwide agree to use and trust it for important international transactions and savings .
Fiat Money is the money we use daily , like bills or coins , which is issued and controlled by the government . Unlike gold or silver , it does not have value by itself . Instead , we all agree to use it as a way to buy and trade things . The government keeps its value by making rules about how much money is out there and how it works .
Importance of exploring currency competition and internationalization for global trade and payments
The International Monetary system ( IMS ) eases international trade and payments . Currency internationalization occurs when a currency becomes popular worldwide for trade and investments . Currency competition is like a horse race but involves currencies competing to become the top international currency ( Fig . 1 ). Researchers study this competition to understand why currencies become popular and what their impact is on the global financial system . Their findings are of importance for officials and researchers , providing insights into currency importance and the risks and benefits of a single global currency . While the U . S . dollar has been dominant since World War II , other currencies like the Euro are gaining significance . Researchers analyze 14 currencies , including the Euro and Chinese renminbi , using fuzzy logic to assess their potential against the U . S . dollar . These findings hold importance for policymakers and researchers , offering insights into currency importance and its impact on the global financial system .
Unveiling the potential of global currencies
Figure 1 . Currency competition - a race for global reserve currency supremacy .
A total of 14 currencies were evaluated ( Fig . 2 ). The U . S . dollar had the highest potential ( 83.0 %), followed by the Euro ( 81.3 %), Japanese yen ( 79.1 %), and British pound ( 75.2 %). Other currencies , such as the Canadian and Australian dollars , Swiss franc , Swedish krona , and Korean won , also showed good potential . The Chinese Renminbi demonstrated the highest potential among the BRIC countries , but other countries in the group had low potential . Despite some issues with the U . S . economy , the U . S . dollar still had the highest potential due to factors like monetary stability , financial openness , and political support . The Euro had slightly lower potential than the U . S . dollar due to fragmentation , limited financial market development , and decreasing political support . The Chinese Renminbi faced challenges due to capital account restrictions and a closed financial market , but its potential has increased over the years . When comparing different currencies , those with higher potential usually have lower transaction costs , a strong trading network , and a developed financial market . Currently , the international currency market is not multipolar , but in the future , the U . S . dollar , Euro , and Chinese Renminbi may lead to a multipolar system . However , the Renminbi
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