Jumpstarting an international currency

Saleem Bahaj and Ricardo Reis

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

Keywords: lender of last resort; internationalization; dollar dominance (search for similar items in EconPapers)
JEL-codes: E44 E58 F33 F41 G15 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2026-02-27
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-ifn, nep-mon, nep-opm and nep-pay
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Published in Review of Economic Studies, 27, February, 2026. ISSN: 0034-6527

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:128001

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