WP-2014-010Reserve Currencies: Can Multiplicity Work? Satyendra Kumar Gupta and Ashima GoyalIndira Gandhi Institute of Development Research, MumbaiMarch 2014 http://www.igidr.ac.in/pdf/publication/WP-2014-010.pdfReserve Currencies: Can Multiplicity Work? Satyendra Kumar Gupta and Ashima GoyalIndira Gandhi Institute of Development Research (IGIDR)General Arun Kumar Vaidya Marg Goregaon (E), Mumbai- 400065, INDIAEmail (corresponding author):ashima@igidr.ac.inAbstractThepaperanalyzesthepotentialriseofnewreservecurrenciesinthecontextoftheeconomicandpolitical determinants of an international currency. Two models analyze the role of soft political power,switchingcoststoanewcurrencyandtransactioncostsintheriseofanewcurrency.Quantitativeindicesaredevelopedtomeasurethesefactors,whicharethenempiricallytestedandfoundtobestatistically significant in determining the rise of international currency. The study further explores thegreater use of Renminbi in East Asia and the trade integration in this region.Keywords: Reserve currencies, network benefits, transaction costs, bargaining power, RenminbiJEL Code: F33, F55, O53Acknowledgements:1 IntroductionHistoricevidences tell us that thecurrencyof alargeglobal economyplays animportantinternational role. However, thetwoneither occur simultaneouslynor always followeachother. Thedollartooktwentytoftyyears(dependingondierentestimates)toovercomeBritishpoundafterUnitedStatesof America(USA)becamelargesteconomyinlatenine-teenthcentury. Moreover,therehavebeenperiodsofoverlapwhenmultiplecurrencieshavebeenacceptedasinternationalcurrencies.Internationalcurrenciesplaymultipleroles. However,storeofvalue(asreservecurrency)istheonlyaspectwehavereliabledatafor. Thisalsocloselycorrelateswithotherrolesofthe currency in international transactions so we focus on the analysis of reserve currencies only.Variouseconomicandpolitical economydeterminantshavebeensuggestedtojudgeifacurrencycanrisetothestatus of international currency. Manyof these, particularlythepolitical economydeterminants, arequalitativeinnature. This paper develops indices toquantify some of these qualitative determinants,and then uses them in econometric analysis.Thedemandforreserveaccumulationbythereservehungryemergingmarketeconomies(EMs)will continueastheygrowfasterthanreserve-supplyingadvancedeconomies(AEs)fortechnological anddemographicreasons. So, theriseof multipleinternational currencysystemisinevitable. Intheforeseeablefuture, if adollarpanicistobeavoided, theworldmustconfrontthisfundamentalpressureintheglobalmonetarysystem. ASouthwithrela-tivelyfastergrowthcannotcontinuetorelyontheNorth1tosatiateanexpandingneedforinsurance. Anyfeasiblesolutionmustinvolvemorethanjustthecurrentreservecurrencies.Chinawants toleverageits status as thelargest tradingnationtoshift preferences infavourofRenminbi(RMB).ItisconvenientforthetradingpartnerstosettletradeinRMBwith their largest trading partner. For scale reasons alone, China could make a huge dierencebyemergingasasupplierof reserves, soRMBsinternationalizationisadesirableoutcomefrom a global standpoint. Experts agree that the rise of RMB is imminent but it is not goingtoreplacethedominanceofdollarinforeseeablefuture. Itismorelikelytosharetheroleofamajorinternationalcurrencyalongwithdollar,astheworldbecomesmulti-polar.Table1: Fivelargesteconomies2001 2011Country GDP(%ofworldgdp) Country GDP(%ofworldgdp)USA 32 USA 21Japan 13 China 10Germany 6 Japan 8UK 5 Germany 5France/China 4 France 4Source: Authorscalculations;Data: WorldBank1SeeFigure: A.11Wedeveloptwoanalytical modelslearningsfromhistorical precedentsonemergenceofinternational currencies. Theresultsof thesemodelsarelatertestedempirically. Therstmodel studies network eects on the decision to choose a currency in the presence of multiplecurrencies. Thesecondmodel studiestheimpactof directandindirecttransactioncostonthechoiceof thecurrencyinatwocurrencyworld. WefurtherinvestigatewhetherRMBcanplaytheroleofaregionalorglobalcurrencyreserve. FormaltestsandanalysisofAsianregionalintegrationandChinasincreasingbargainingpowerhelptoassesthisissue. IfEastAsiancountriesswitchtodirectsettlementinRMBtheirtransactioncostswillreduce. Thisreduction in transaction cost might oset the network benets these economies gain from theindirectdollartradesettlement.The paper contributes to the analysis of multiple international currencies. The next sectiondiscusses selected literature on international currencies. In section 3, we develop two analyticalmodelsbasedontheliterature. Insection4, wedevelopindicesfordierenteconomicandpoliticaldeterminants. Section5hastheisempiricalanalysisandsection6isontheriseofChina. Thelastsectionsummarisesourndings.2 LiteraturereviewTo identify gaps in research literature from both economics and political economy is reviewed.The majority of research focuses on the economic literature and ignores political determinantsofinternationalcurrencies.2.1 EconomicliteratureThestatusofanationalcurrencyisusuallyenforcedbyasetoflegalrestrictions. However,theuseofcurrenciesasinternational mediumofexchangeislargelydeterminedbythein-visiblehand. Recentworkshowsmultiplereservecurrenciescancoexistbecauseofmultipleequilibriaintheuseofaninternationalcurrency(Krugman1984). Matsuyamaetal.(1993),intheframeworkofrandommatchinggamesforatwo-countrymodeloftheworldeconomy,alsondmultipleequilibria. Inoneequilibrium, thetwonational currenciescirculateonlylocally;inanother,onecurrencybecomesaninternationalcurrency. Thereisalsoanequilib-riuminwhichbothcurrenciesareacceptedinternationally.Thedierentrolesofaninternationalcurrencyconfervariedbenets(Cohen2012). Theuse of acurrencyinforeign-exchange trading, trade invoicing, or for ocial interventionpurposes generates some measure of gain at the microeconomic level. Cohen further adds thatonlythestore-of-valuerole, whichbydenitionimpliessomelevel of foreignaccumulation,will generate any amount of seigniorage or macroeconomic exibility for the issuing country.Cohen(2012) argues that acurrencys roleintradeimpacts thereservepreferences oftheforeigncentral banks. Thecurrencycompositionof thecentral banks reserves gener-allyreectsthecurrencychoiceof theinternational commercial relationship. Thecurrencydenomination of trade plays a vital part in determining which among several investment cur-rencieswill emergeasafavouredreservedcurrency. Widespreaduseintradeinvoicingand2Table2: FunctionsofmoneyFunctionofmoney Goverment PrivateplayersStoreofvalue Internationalreserves Currency substitution (privatedollarization)Mediumofexchange Vehicle currency forforeign exchange in-terventionInvoicing trade and nancialtransactionsUnitofaccount Anchor for pegging lo-calcurrencyDenominating trade and nan-cialtransactionsSource:(Cohen1971)settlementleadtoareservecurrencyroleintheglobalmonetarynetwork. Hencetradeisanimportanttrackforacurrencytobecomereservecurrency.Frankel (2011)summarizeswhymostempirical studiesof international currencychoicehaveusuallyfocusedonthecurrencycompositionof foreignexchangereservesasthemainindicatorof theinternational useof currencies. First, historicannual dataforall relevantcurrencies are available for a long duration; the other international roles that appear in Table2arenowherenearascomprehensivelyquantiable. Second, reservecurrencyholdingsaremostrelevanttoimportantquestions,suchaswhethertheUnitedStateswillcontinuetobeable to nance its current account decit. Third, the various roles of an international currencyareheavilyinterrelated,causallyandstatistically.Chinn&Frankel(2007,2008)identifyoutputandtrade,nancialmarkets,condenceinthevalueof thecurrency, networkexternalityascritical factorsthatdeterminethestatusofinternationalreservecurrency. Lee(2010)usesthefollowingdemandfunctiontoestimateeconomic determinants of international currency. Table 3 lists the proxies he uses in estimat-ingthemodel.Logit(currency share)it= 0 + 1(GDP share)it + 2inflationit +3(FX turnover)it + 4(KA openness)it + 5(lag of Logit(currency share))it + itwhere,logit(currencyshare)2=log(share1share)Table3: ListofProxiesforDeterminantsinLee(2010)Independentvariable ProxySizeofoutputandtrade GDPDepthofnancialmarket ForeignexchangeturnoverdataandChinn-ItoIndexCondenceinvalueofcurrency InationrateNetworkexternalities LagofcurrencyshareAnother important factor determining the international currency is the transaction cost ofusingthe currency. The literatureidentiesthreedierentapproaches- Economiesofscale,thickmarketexternalities andsearchapproach analysingtransactioncostsintheforeignexchangemarket. Economiesof scale approachandthickmarketsexternalities approachsuggestthattransactioncostsdeclinewiththeliquidityofbilateralcurrencymarkets. Inthe2Weexplaininthemethodologysectionhowtouselogitformofthedependentvariable.3rst approach, foreign exchange dealers operating in each bilateral currency market face somexedcosts,whichgiverisetoeconomiesofscale(Black1991,Krugman1984). Accordingtothesecondapproach,dealersfaceadoublecoincidenceofwantsproblemthatcausesathickmarketsexternalitiesandhencetransactioncostdeclineswiththetotal numberof dealersoperatingineachmarket(Rey2001).The third approach works on the principle that the willingness to accept a given means ofpaymentdependsontheexpectationsaboutthesamewillingnessonthepartoftheothers.This willingness does notdependonthe liquidityofparticularbilateralcurrencymarkets (asintheearliertwoapproaches),butratherontheliquidityofthecurrencyitself3. Inthelightof this approach, a greater worldwide usage of a currency increases its acceptability, implyinga decline of transaction costs, which result from the liquidity of the currency, rather than fromtheliquidityofbilateralcurrencymarkets(DeFreitas1999). Hence,thismodelcapturestherelevant network externalities eect we are interested in understanding in this paper. We willusethisinsighttodeveloptransactioncostindexinalatersection.These studies, however, ignore political economydeterminants whichare discussedinnextsubsection. Wedevelopsomeindicestoproxythesedeterminantsandusetheindicesforfurtherqualitativeaswellasempiricalstudy.2.2 PoliticaleconomyliteratureChey (2012) identies domestic actors preferences regarding currency internationalization, -nancial liberalization, the role of the state, and international political power, as some politicaldeterminants.Strange(1971)pioneeredthepolitical economyinthestudyof international currencies.Sheraisedthefollowingtwoquestions: Under what political, as distinct fromeconomic,circumstancesdopeoplestarttouse-eitherforall orforonlysomemonetarypurposes-acurrencywhichiseitherissuedorcontrolledbyastateotherthantheirown? andWhatpoliticalconsequences canbe expectedto follow,forbothparties,from thisinternationaluseof currency?She further classied international currencies into four categories: master cur-rencies4, top currencies5, negotiated currencies6, and neutral currencies7, highlightinghowbotheconomicandpoliticalfactorsshapecurrenciesinternationaluses(Chey2012).Amastercurrencyalwaysderivesitsstatusfromthepolitical relationshipsbetweentheissuingandthesubordinatestates. SterlinginthesterlingareaandtheFrenchfrancinthe3Thisapproachisintroducedby(Chrystal1984)byextendingtheearlierworkof(Jones1976).4Amastercurrencyisthecurrencyofahegemonicorimperialstatethatcoercesitsusebyotherstates.5Atopcurrencyisonethatismostfavouredbytheworldmarketforvariousmonetarypurposesduetoitseconomicsuperiority.6Anegotiatedcurrencymeanwhileoccurs whentheissuingstatebargains or negotiates politicallywithother states for their useof its currency, oeringinducements suchas militaryanddiplomaticsupport oreconomicbenets.7Aneutral currencyisacurrencywhoseinternational usestemsprimarilyfromthestrong, butnotnec-essarilydominant, economicpositionofitsissuingstate, whichhasnointerestinpromotingitsinternationaluse.4franczoneinthepastwereexamples. Incontrast,thestatusofatopcurrencyisdeterminedprimarilybyeconomicfactors, andittendstobethecurrencyof thepredominantstateintheworldeconomy. Thedollarinthe1950swasoneexample. Strange(1971)characterizesanegotiatedcurrencyprimarilyasacurrencyindecline,thatis,onethathaslostorislosingitspolitical dominanceasamastercurrencyoritseconomicdominanceasatopcurrency.Examplesof negotiatedcurrenciesincludesterlinginthepostwarperiodandthedollarinthe1960s. However, Helleiner(2008) pointsout that anegotiatedcurrencycanalsobeacurrency on the rise. The Swiss franc and the deutschmark were example of neutral currency.Importantly, Strangeemphasizedthatsomecurrenciescanbeofmorethanonetypeatthesametime. Evenifacertaincurrencyisatopcurrencyforsomeusers, forexample, itcanalsobeamaster,neutral,ornegotiatedcurrencyforothers. Thispoliticaleconomytypologyof international currencies provides a useful framework for analyzing the eects of political aswellaseconomicfactorsoninternationalcurrencystatus.Helleiner (2008) identies adirect andanindirect channel throughwhichpolitics canimpactacurrencysinternationaluse. Throughthedirectchannel, politicsinuencesitsin-ternational statusdirectly, withoutregardtoeconomicdeterminants. Throughtheindirectchannel, politicsaectsthecurrencysinternational usebyimpactingitseconomicdetermi-nants,whichwerediscussedearlier.Politicsmattersinparticularformasterandnegotiatedcurrencies, asdiscussedearlier,while top and neutral currencies derive their international standings mainly from the inherenteconomicattractiveness. Helleiner(2003)citesexample, duringthe1900sand1910s, ofUSpolicymakersdirectlyencouragingmanycountriesintheCaribbeanandCentralAmerica-aregion where the United States had great inuence - to increase their usage of the dollar, evencallingforthecreationofadollar-basedmonetaryunioninvolvingallcountriesintheAmer-icas, forUnitedStateseconomicandpolitical benets. Foranegotiatedcurrency, however,boththeissuingstateandtheforeignstatessupportingthecurrency,andtheirinteractions,inuenceitsinternationaluse(Helleiner2008).However, the major challenge is to identify the factors that play important role in politicaleconomyandquantifythemfor further analysis across dierent countries over time. Forthis purpose, we developsome indices of political economydeterminants of internationalcurrencies.3 AnalyticalframeworkThissectiondevelopstwoanalyticalmodelstounderstandamulti-currencyworld. Therstmodel developstheconditionsforcoexistenceof twocurrenciesinthepresenceof networkexternality benets from a currency network. The model helps in determining the currency acountry will adopt in the presence of two currencies if the cost of switching to a new currencyandthenetworkexternalitybenetsareknown. Thesecondmodel showsthetransactioncostofexchangingcurrenciesalsoplaysanimportantroleinthedecisionofthechoiceofthecurrencywhenmultipleinternationalcurrenciesexist.53.1 TwocurrencymodelusingnetworkexternalitiesLets assume there are Ncountries. To simplify our model,we assume that countries trade inproportion of their GDPs. We can place these countries from left to right in decreasing order oftheir GDP. Let the share of GDP of the countries from left to right be {n1, n2, . . . , nN1, nN}8.WefurthernormalisetheworldGDPto1whichmeansn1 + n2 + + nN1 + nN= 1. Wedividethetimeintotwodiscreteperiods. Intimeperiodone,thereisonlyoneinternationalcurrencyandintimeperiodtwo,therearetwointernationalcurrencies.In time period one, we assume that country 1 (largest in the world) is the only supplier oftheinternationalcurrency. Thisassumptionissupportedbyexistingliteratureonthedeter-minantsofinternationalcurrency. Leta1betheexpectedintrinsicvalueofacurrency9andb1isthenetworkexternalitybenetonegetsfromjoiningthenetworkofcurrency1. Totalbenet for any country i from joining the network of currency 1 is a1+(1ni)b110. We madeamodicationfromthestandardpracticeof usingnumberof countriesinanetwork, thatgivessameweighttoeachcountryirrespectiveof thesize. Weusethesizeof thecountriestoaccountfortheasymmetryinthenetworkbenetsothercountrygetsfrombeingpartofthenetwork. Thisisjustiedonthebasisof largenumberof transactionsbytheresidentsofalargecountryortheliquidityofthecurrencyofthelargecountriesintheinternationalmarket11. Wenoticethatasthesizeof thecountry(ni)decreases, networkbenettothatcountryincreases12. Thismeanssmallcountriesaremorelikelytojointhenetworkofabigcountrytogetthenetworkbenet.We can calculate social welfare to all the countries when they are part of the same networkas

N1[a1+ (1 ni)b1] i.e. N(a1+ b1) b1. Firstterm, N(a1+ b1)isthesumof benetthateachcountrygets fromnetworkofacurrency. The secondterm takes careofthedoublecountingofthenetworkbenet13.In time period two, the second biggest country 2 also tries to make its currency an inter-national currency. Here, we assume that a large country wields large bargaining power, whichisanimportantdeterminantof international currency. Thisassumptionwill beempiricallytested. Let country K be a marginal country beyond which all countries have small bargainingpowerandtheyaremorelikelytousethenewcurrency2iftheybenetmorefromjoiningits network. CountryKcanjoineither of thenetworks. Inamorecomplexmodel, eachcountrycanusemultiplecurrenciessimultaneously. But,forsimplicationwearerestrictingeachcountrytouseonlyonecurrencywhenmultiplecurrenciescoexist.Leti1andi2berepresentativecountriesofthenetworkofcurrency1 andcurrency281isthelargestcountryandNisthesmallestcountry.9Thevaluethatonegetsbyholdingthemoneyorthevalueonegetsfromthegoodsandservicesthatthemoneycanbeexchangedfor. Thisalsocapturesthevolatilityintheforeignexchangemarket.10= a1 + [(n1 + n2 + + nN1 + nN) ni]b111WecanalsojustifyitassumingthateachcountryhaseectiveworkersinproportiontoitsGDPandeacheectiveworkersgoesintheinternationalmarkettosellherproduce.12i.e.a1 + (1 ni)b1increase.13Forexample,thereisonlyonenetworkbenetinanetworkoftwocountries.6respectively. Anycountrythatwantstojointhenetworkofcurrency2willincuraswitchingcostsperGDPunit. Implicitly, weareassumingthatalargecountryneedstospendmoreresourcestojointhenetworkofthecurrency2. Switchingcosttotherepresentativecountryi2tojointhenetworkofcurrency2issni2whereni2istheGDPofcountryi2.Thebenettocountryi2if itjoinsthenetworkof currency2will bea2+ (n2+ nk+nk+1+ +nN ni2)b2sni2, where a2is intrinsic value of currency 2 and b2is the networkexternality benet of joining the network of currency 2. We can similarly write the benet tothecountryi1aftertheswitchofthecountriessmallerthancountryKtothecurrency2asa1 + (n1 + n3 + n4 + + nk ni1)b1.Thecondition i2 {2} {K, N}toswitchtoanewinternationalcurrency2is:a2 + (n2 + nk + nk+1 + + nN ni2)b2 sni2 a1 + (1 ni2)b1(1)Similarly,thecondition i1 {1} {3, K}nottoswitchis:a1 + (n1 + n3 + n4 + + nk ni1)b1 a2 + (1 ni1)b2 sni1(2)We can solve these equations for i1=i2=kand get the value of s and nkin terms of b1and b2:nk= 1

b2 b1b2

(n2 + nk+1 + nk+2 + nN) (3)s =

a2 a1nk

1 nknk

b2

b2b2 b1

b1

(4)Wenoticefromequation3thatthebiggesteconomythatcanadoptthenewinternationalcurrencydependsonlyonthenetworkbenetsitgetsfromeitherof thenetworksandthetotalsizeofthenetworkthatadoptsthenewinternationalcurrencyalongwithit. Initially,nocountryadoptsanewinternationalcurrencybutwhentheydo,thesizeofthenetworkofthenewinternationalcurrencysuddenlyincreases. Thissupportsthenon-linearrelationbe-tween the size of the international currency (or foreign reserves) that we observe in the data14.Equation4givessolutionfortheswitchingcostintermsofexpecteddierenceinthein-trinsic value of the currencies and the network externality benets from the currency networks.Thisconrmsthendingthatthecondenceinthecurrencyisanimportantdeterminantoftheinternationalcurrency.Theswitchingcosthasanon-linearrelationwiththebenetsb1andb2. Wecanplotthisrelation on b1and b2axis for multiple values of s (Figure 1a). Each curve has same value of sbutincreasesinthedirectionofthearrow. Wenoticefromthegraphthattherequirednet-workbenetfromanewinternationalcurrency, b2, increasesastheswitchingcostincreasesfor a given value of network benet from currency one, b1. We also notice that the curvature ofthe curves increases as the value of b1increases. This is justied by the inertia in moving to a14Thisisdiscussedintheempiricalanalysissection.7new international currency in presence of a strong (and large) network of the existing currency.Figure1: Qualitativerepresentationofequation4(a)Iso-switchingcostcurves (b)ImpactofintrinsicvaluesIfthereismorevolatilityandriskinthecurrencythatcurrencywillhavelowerintrinsicvalue and it is less likely to gain the status of an international currency. If a new internationalcurrencyhaslowvolatility(i.e. higherintrinsicvalue, a2)thenthecountriescanswitchtothatcurrencyeveniftheswitchingcostishigh. ThisisshowninFigure1b15. Iso-switchingcostcurvesmovesdownwardforincreasinga2whilekeepinga1xed. Foragivenvalueofb1,countries can switch to a new currency if the intrinsic value of the new currency is sucientlyhighirrespectiveofsmallnetworkofnewcurrency.3.2 TransactioncostmodelwithprivateplayersThis model replicates thetradepatternof theASEAN+3countries withUSAandChinain2001and2011. In2001, USAwasthelargesttradingpartnerof mostof thesecountriesbutin2011, Chinabecamethelargesttradingpartner. TheUSdollarwasandstillitisaninternational currency, however, thereisanoptionforthesecountriestouseRMBfortheirtradewithChinaortocompletelyswitchtoRMB.Weconsider threecountries {i,j,k}eachwithoneprivateagent, {Ai, Aj, Ak}. Let thevalueofproductioninthehomecurrencyforcountryibeyi. Weagaindividetimeintotwodiscreteperiods. Countryi sellsproportionof itsproducetocountryj andtheresttocountryk. Intimeperiodone, countryjisthemajortradepartnerof countryi(i.e. >12)andthecurrencyof countryj istheonlyinternational currency. Wealsonormalizealltheproductionandthetransportationcosttozerotofocusonthecostoftransactionalone.Intimeperiodone, thetransactioncosttotheagentAiisyiij16whereijisthecostofexchangingcurrencyjperunitofcurrencyi.Intime periodtwo, the trade patternchanges. Countrykbecomes the largest tradepartner of country i and proportion of produce of country i is exported to country k(where>12). Currencyof thecountryj isstill aninternational currency. However, thereisanopportunityforcountryktopushitscurrencyasaninternational currency. Weknowthatthe bargaining power of a country depends on the proportion of the mutual trade between the15Allthreecurvesareplottedforsameswitchingcost.16yiij+ (1 i)yiij8countries. Our empirical analysis shows the bargaining power is an important determinant ofaninternationalcurrency. Astheproportionoftraderises,sodoesthebargainingpower,ofcountrykwiththecountryi. Itcanpushtouseitsowncurrencyinthesettlementof thetradewithcountryi. Withthisrestriction,therearethreepossibletypesoftransactioncostforthecountryitosettleitstradeinthepresenceoftwointernationalcurrencies.yi(ij + jk) + (1 )yiijUses currency jyiik + (1 )yiijUses both currenciesyiik + (1 )yi(ik + kj) Uses currency kNow, consider the rst case when country i continues to use the currency of country j. In thiscase,totaltransactioncoststotheagentsofcountryiare(ij+ jk)yi. Thiscostishigherthanthecostitincurredwhencurrencykwasnotaninternationalcurrencyandthecountryitradedmainlywithcountryj. Intheabsenceofanyotherbenetsofusingcurrencyj,thecountry i will incur higher transaction cost under multiple currencies. Moreover, as we foundinthepreviousmodel, inthepresenceof networkexternalitybenets, acountrywill haveinertiainswitchingtoanewinternationalcurrency.Inthesecondcase,eachcountryidecidestouseitscurrencywitheachtradingpartner.We can rewrite the transaction cost as ijyi +(ik ij)yi. We observe that the rst term isthesameasinthecaseofusingcurrencyj. However,thesecondtermcanbeeitherpositiveor negative. If the new international currency, k, can develop deep and liquid bilateral foreignexchange market with its trading partners, the transaction cost of the currency conversion canbelowerthanthanusingcurrencyj. WeobservedthatChinaistryingtopushforbilateralcurrencytradewiththeASEAN+3countries. Ifitsucceedsinreducingthetransactioncostlowerthantransactioncostofcurrencyexchangeinthedollarmarket,itcanstartgainingatleastregionalcurrencystatus.Inthethirdcase, countryi decides tousecurrencykwitheachtradingpartner. Wecanrewritethetransactioncostasikyi+ (1 )kjyi. Bydenition(1 )islessthanone. Asapproachesone, thistermwill approachzero. Wediscussedinthetransactioncostindexsectionthatthetransactioncostofcurrencyexchangebetweentwointernationalcurrenciesisfarlessthanthetransactioncostofcurrencyexchangebetweenacurrencyandaninternationalcurrencyi.e. kjwillbefarlessthanik. So,wecanignorethesecondtermandgetapproximateof transactioncostfortheagentAiwhileusingcurrencykasikyi17.Theseresultscanbesummarisedasbelow:Whenanewinternational currencybecomes availablefromacountrywithlargebargainingpower, thebestoptionforsmallercountriesistoeitherswitchtothenewcurrencyoruseboththecurrenciessimultaneously.Theresultsofthesetwoanalyticalmodelswillbetestedandusedinempiricalanalysis.17Similarapproximationcanbeappliedinthecaseofcurrencyjbutthetransactioncostcannotbelowerthanijyi.94 MethodologyanddataThis sectionquanties someof theeconomicandpolitical economicfactors discussedanddevelops indices that are used in estimating the demand function for an international currency.Itdiscussestheindicesandthemethodologyusedintheempiricalanalysis.4.1 Bargainingpowerindex(pairwise)(Chey 2012) argues that one of the major sources of a states soft power may be other stateseconomicdependenceonit,sincethismaytransformtheirperceptionsoftheirowninterestsinwaysthatbringthemintolinewithitsinterests. Foranalysingthisissue,oneofthecen-tral problems is how to measure and portray changes in international political power. A largetradingpartnercanusecoercivemeanstoforceasmall statetouseitscurrencyinmutualtrade.Weusetradebetweenapairof countriestomeasuretheimpactof softpolitical power.Let two countries, l and s, be engaged in bilateral trade. To analyse soft power, we assumethatlisalargecountryincomparisontocountrys. Theproportionoftradeofcountrylwithcountryswillbeasmallfractionofthetotaltradeofcountryl. However,itwillbeotherwayaroundforthecountrys. Insuchascenario,countryswillbemorevulnerableto coercive pressure from country l as s depends on l heavily for its trade. Larger the frac-tionofsstradeiswithlmoreitwillbedominatedbyl. Theimpactoftradeintensityforcountrylwillbereverse. WecallthisquantitativemeasureofsoftpoliticalpowertheBar-gaining Power Index (BPI), and dene the bargaining power of l over s in the following way:BPIsl= 100

Msl+Esl

wl=1(Msl+Esl) Mls+Els

ws=1(Mls+Els)

where, wisthetotal numberof countriesintheworldands,l [1,w], Mslisimportof sfroml,Eslisexportofstol,

wl=1 Mslistotalimportofsand

wl=1 Eslistotalexportof s. Wehavemultipliedthenumberby100tomakeitmoreconvenientforcomparativeanalysis.4.1.1 Criteriaforselectingcountries/regionAs themainfocus of this paper is international currencies, wehaveselectedsomeof themajoreconomicsandregionssomeofwhosecurrencieshavealsobeenusedasinternationalcurrencies.ASEANisanimportantgroupof eastAsianeconomiesthatwehaveincludedinouranalysis. Theseeconomiesaregrowingataratefasterthanthatofrestoftheworld. Theseeconomies arealsocloselylinkedwiththreeother major economies intheregion(Japan,SouthKoreaandChina).BRICS18isagroupofEMsthatarealreadyanimportantmarketforalargenumberofgoods,leadingmanufacturersofgoods,providersofservicesandsourceofnaturalresources.18AnacronymforBrazil,Russia,India,ChinaandSouthAfrica.10Alargeproportionoftheworldpopulationresidesinthesecountries.European Union, EU, is the largest economic and monetary union. Some of theeconomies of the regionare alsopart of G8andare consideredseparatelyas well. Euroisplayinganimportantroleintheregionandinternationaleconomics. ManycentralbanksstoreEurointhereservepooloftheircountry.Groupofeight19,G8,representsthemostimportanteconomiesofcurrenttime. Manyofthesehavebeengreatimperial powersinthelastfewcenturiesandtheircurrencieshaveplayedtheroleof importantinternational currenciesof varyingimportance. USAhasbeenthe largest economy for over the last century and the dollar has played the leading role amongtheinternationalcurrencies.Australiais oneof thelargest sourceof natural resources. Somecentral banks storeAustraliandollartohedgetheserisks.20.Chinais thelargest tradingcountryandsecondlargest economy. Political leaders ofChinahaveexpresseddesiretomaketheircurrencyaninternational currency. Theyhavealreadystartedsomeeortsinthisdirection. Chineseeconomyiswell integratedwiththeregional economies and it is the leading trading partner for many of them. China has becomeagatewayformanyof theintermediateproductsthataremanufacturedinthesecountries.Freetradeagreementandgeographicalproxyhelpsineconomicintegration.JapanandKoreaaretwoAsianeconomicgiantsof twentiethcentury. Bothof thesestartedfromlowincomebaseandbuiltonindustrialgrowthandexporttodevelopedcoun-tries. Japaneseeconomyhaditspeakinthelatetwentiethcenturyandcontinuestoplayasmallerbutimportantroleininternationaleconomy.Indiaisthelargestdemocracyandsecondmostpopulouscountry. Itspopulationisalsoamongtheyoungestintheworld. AneducatedandEnglishspeakingyoungpopulationhashelpedherinbecomingamajorserviceproviderof theworld. Forlasttwodecadesithasobservedhighgrowth,whichbecamevolatile,however,aftertheglobalnancialcrises.Switzerland is a relatively small economy compared to the others. However, its currencyplaysaroleininternationaleconomics. Itisaneutraleconomywithlittlepoliticalandmili-tarysayininternationalpolitics.Some other economies are included to understand the interaction of the leading economieswith them. Mexico has a free trade agreement with USA and Canada and it is well integratedwith the North American economies. Middle-east is a leading supplier of energy to the world.19However, wehaveexcludedCanadafromtheanalysis. Thoughitisoneof thelargesteconomiesintheworld,itscurrencyisofnotofmajorimportance.20IMFhadaseparateidenticationofAustraliandollarinitsCOFERdatareport. Newsreportathttp://rt.com/business/imf-reserve-currencies-909/114.1.2 BilateraltradedataBilateral trade data is taken from IMFs Direction of Trade Statistics (DOTS) for 1992, 2001and 2011. The dataset starts from 1992 as data for 1991 for some the economies in our samplewerenotavailable. Wehavesubstitutedzerosforstillmissingdata. Someoftheeconomiesinoursampleareaneconomicorpoliticalregion(e.g. EU,ASEAN)soweaggregateddataforall thecountriesinthatregion. WecalculatedBPIindexforeacheconomy(TableA.4)usingtheformuladenedearlierinthissection.4.1.3 ObservationsChina has consistently gained bargaining power over its trading partners during the observedperiod. ItsreversalwithJapanisinteresting. In1992,theBPIofJapanonChinawas10soChinawasdominatedbyJapan. But,aftertwodecadesin2011,China(BPI=12)hadmorebargaining power over Japan. Bargaining power of China increased over United States as well.ChinahasthehighestBPIagainstAustralia(20)in2011, sinceAustraliaisheavilyde-pendentonnatural resourceexport, alargeproportionof whichgoestoChina. However,theproportionissmall fortheChineseeconomy. ThisgivesadvantagetoChinaanditcanexercisebargainingpoweroverAustralia.Switzerlandsneutralroleintheinternationaleconomy,isreectedinthelowBPIindexof Switzerland over all our sample economies. There is no signicant change in the index overthelasttwodecades.GermanyhassignicantlyhighBPIoverSwitzerland, FranceandtheUnitedKingdom.However, ithaslowBPIoverASEAN,AustraliaandUSA.IthadhighBPIoverCIScoun-tries two decades ago but BPI reduced signicantly since then. This shows the changing tradepatternsofcentralAsiaandregionalintegrationoftheseeconomieswithChina.Indiahaslowbargainingpowerwithmostofitspartnercountries. Thisisareectionofitsrelativelyclosedeconomy. Indiantradeisasmallfractionofthelargetradingcountries.USAhasbeenamajoreconomicpowerforthelastcentury. However, itsBPIindexisdecreasingovermostoftheworldeconomiesoverthelasttwodecades. Infact, itissolowthat it may have lost the status of the leading economic power and have become a negotiatedeconomy. However, it is not correct to judge the status of an economy on just one parameter.4.1.4 LimitationsMultilateralagenciescollectdatafromthenationalagenciesofdierentcountries. Dierentagencies havedierent reportingstandards andthedatareportedbytwoagencies hardlymatches. One of the reasons for this dierence is the use of Free on Board (FOB) and Cost,InsuranceandFreight (CIF)forreportingthedata. Otherknownproblemsaredierencesinreportingthedestinationandthesourceofproductsbytheagenciesoftheexporterandtheimportercountries. Forexample, whenthereispolitical tensionbetweentwocountries,12manygoodsarestill tradedbetweenthembutthroughthirdcountryports. However, thedierencesbecauseofdierentreportingpracticesareasmallfractionoftotalvalueand,so,can be ignored. For such reasons, the small dierences between the values of bargaining powerindexcanbeattributedtotheerrorinreportingmechanismoftradedata.4.2 Bargainingpowerindex(foracountry)WeneedBPIforthesixmajoreconomiesovertheperiodofouranalysis(1987-2011)toes-timatethemodel. Itisdierentfromcalculatingtheindexforacountrypair. TocalculateBPI for a pair, we need bilateral trade data for two countries to calculate pairwise BPI. Here,weneedtondindexforacountrywithall itstradingpartners. But, eachcountrytradeswithoverhundredothercountries. ItisdiculttocalculateBPIforacountrywithallthesetradingpartners. Weassumethatitisimportanttohavehighbargainingpoweragainstthebiggest tradingpartners. If acountrycanexert bargainingpressureonthelargetradingpartners,itshouldbeabletoexertpressureonsmallerpartnerswithrelativeease.Wesortedbilateral tradedatafor eachof thesixcountries withall other countries oftheworldandfoundtenbiggest tradingpartners for eachcountry. Wedidthis for eachyearovertheperiod1987-2011. Generally,tenbiggestpartnersconstituteover60%oftradeforeachof theseeconomies. Withthehelpof thisdataforthesetradingpartnersforeachyear,we calculatedpair-wise BPI foreacheconomyforeachyear. To come to the bargainingpowerindexforacountryforagivenyear,weassumethatthetotalbargainingpowerforaneconomyforagivenyearisalinearcombinationofitspairwisebargainingpoweragainstitstenbiggesttradingpartners.4.3 TransactioncostindexWe use the Jones-Chrystal model discussed earlier to develop a Transaction Cost Index (TCI)thatcanbeusedtocomparetransactioncostsofdierentvehiclecurrencies. Considerade-centralizedworldeconomycomposedofNcountries. Timeisdividedintodiscreteintervalscalledperiodsandineachperiodalargenumberofdealersentertheforeignexchangemar-kettomakesometransactions21. Anydealerlookingtoexchangecurrencyiforcurrencyjneeds to make phone calls to other dealers to nd a dealer who will be interested to exchangecurrency j for currency i22. The process of nding a corresponding dealer is random but thedealer knows the actual proportion of currencies trade. Let p = {p1, p2, p3, .. pN} representsthisproportioninvectorform. Wecannormalizetheseproportionssothattheirsumisoneandthenusethemastheprobabilityofndingadesireddealer. Then,theconditionalprob-abilityofndingadesireddealerinarandomsearchispipjwherepi,pj p. Theexpected(direct) transaction cost is1pipj. If the dealers decide to go through a vehicle currency k thenthe (indirect) transaction cost will be1pipk+1pkpj. The dealer will choose direct transaction if1pipj1pipk+1pkpjwhichcanbesimpliedtogettheconditionpk pi + pj. So, thecostoftransactionfordirecttradewillbelowerthanthecostofindirecttradewhentheprobability21Numberofdealersisconstantinanyperiod.22There can be other sophisticated methods like internet auction/bidding to search for a corresponding dealerbutforsimplicity,andwithoutlossofgenerality,wewillsticktotelephonecallsmethod.13ofndingadealerwithvehiclecurrencyislowerthanthejointprobabilityofndingdealersintwocurrencies.We calculated TCI using data from triennial foreign exchange market survey of BIS (2010).TheresultsaregivenintablesA.5andA.6. Dataisavailableonlyforafewcountriessowehavetakensomeof thecountriesfor whichBPI wascalculated. ThetablesshowindirectTCIusingdollarasavehiclecurrencyismuchlowerthanthedirectTCIforanycurrencycombinationin2010. This supports indirect transactions betweencurrencypairs. It alsosupportsnetworkexternalitybenetsfromuseofadominantcurrency.IntableA.7,wehavecalculatedTCIforthecurrenciespairfrom2001to2010. TheTCIindex is falling over the years for most of the currencies as the liquidity of the currencies otherthan US dollar is increasing marginally. However, the RMB observes largest fall in TCI indexwith all the currencies over the decade that reects the increasing liquidity of the currency intheinternationalforeignexchangemarket.4.3.1 LimitationsTCIindexisdevelopedtondtheliquidityofacurrencyinthemarket. Itisassumedthateachdealerhasthesameamountof acurrencybutsomedealerswill havemoreamountofacurrencythantheothers. This makes thecurrencymarket asymmetricandcalculatingprobabilitythewaywehavedonewillbeerroneous. Evenso,itisausefulapproximationtounderstand network externalities. As the data is available only at triennial intervals, it is notpossibletousethisindexintheempiricalanalysis.4.4 Economicpowerindex(EPI)WeuseamodiedversionoftheIMFquotaformula23todesignanEconomicPowerIndex(EPI).Wedropeconomicvariabilityfromtheformulabecauseforeignexchangevolatilityisoflessimportanceincomparisontotheothervariablesintheequation. Itisalsodiculttogetanannual valuethateectivelyrepresentsthevolatilityunlikeforothervariables. Weredistributetheweightofothervariablesandthenewweightsofgdp,opennessandreservesare0.59,0.35and0.06respectively. So,EPI=0.59*gdp+0.35*openness+0.06*reservesSince the variables are of dierent scale, we will use them as a percentage of the total gdp isthepercentageoftheworldGDP,opennessisthepercentageofthemaximumpossiblevalueof theChinn-ItoIndexforopennessandreservesisthepercentageof total reservesinthecurrencyofthatcountry.GDPonmarketexchangeratesandPPPexchangeratesdonotgiveanaccuratepictureof the economic power of a country. Each economy has both tradable and non-tradable goods.For the tradable goods one should use market exchange rates and for non-tradable goods onemustusePPPexchangerates. Forthispurpose,GDPismeasuredasablendofGDPbased23CurrentIMFquotaformula. source: http://www.imf.org/external/np/exr/facts/quotas.htm14onmarketexchangerates(weightof60percent)andonPPPexchangerates(40percent).Table4shows theEPI indexfor theinternational currencysupplier countries andforChina. WeobservethattheEPIiseitherstagnantordecreasingforthedevelopedcountries.Incontrast, EPI for Chinahas increasedsignicantly. We cansaythat this is the mostconservative estimate for the economic power of China in respect to the other countries as wehave used Chinn-Ito Index for openness. This takes care of only dejurenancial openness ofacountry. Ifweuseothermeasures(e.g. trade-to-gdp,shareoftradeinglobaltrade,capitalow etc.)that are continuously increasing for China, then EPI index for China will rise fasteroverthesameperiod. SoChinasrelativeeconomicpowerisincreasing.Table4: Economicpowerindex1991 2001 2005 2011USA 53 55 54 52UK 38 38 38 38Japan 42 41 40 40Switzerland 36 35 35 35EU 52 51 50 49China 2 9 10 12Source: Authorscalculations.ThevariablesusedinconstructingtheEPIindexaresimilartothevariablesusedintheestimationoftheempiricalmodelsothisindexisnotusedintheempiricalanalysistoavoidtheproblemofcollinearity.Weuseamodiedmodel ofLee(2010)toestimateeconomicandpolitical determinantsofareservecurrency. Theindicesdevelopedwillserveasaproxyforpoliticaldeterminants.Inourmodeltheproxiesheused,giveninTable3,aremodiedasinTable5.Table5: ListofProxiesforDeterminantsIndependentvariable ProxySizeofoutputandtrade GDP,BPIDepthofnancialmarket ForeignexchangeturnoverdataandChinn-ItoIndex,privatecapitalowCondenceinvalueofcurrency Inationrate,exchangeratevolatilityNetworkexternalities LagofcurrencysharePlottingcurrencysharewiththeeconomicdeterminants(Figure2a)showsnolinearre-lationshipbetweenthevariables. ThecurrencyshareisverylowforlowvaluesofGDP(asashareoftheworldGDP). Afterathresholditincreasesandsuddenlybecomesveryhigh.Theliterature(Lee2010)suggestsuseoflogittocapturethenon-linearrelationshipbetweenthe variables. In the Figure 2b, we have plotted logit of currency share against GDP and ndthat the two variables now exhibit a linear relation. So, the model specication uses the logittransformationofcurrencyshare.15Figure2: GDPvsshareofcurrency(linearandlogit)(a)GDPvsshareofcurrency(linear) (b)GDPvsshareofcurrency(logit)Source: Authorscalculations5 Empiricalanalysis5.1 DatadescriptionandsourcesGDPRealandPPPGDParetakenfromtheWorldBankssWorldDevelopmentIndicators. Fur-ther, wecalculatedtheGDPshareof eachcountryfromthedataandtheGDPsharehasbeenusedintheestimationofthemodel.CurrencycompositionThis is taken from IMFs Currency Composition of Ocial Foreign Exchange Reserve (COFER)database. Thisgivesdataforeachcurrencyundertwocomponents-allocatedreservesandunallocatedreserves24. Weusedallocatedreservedata.InationInation(Consumer Price Index) are takenfromIMFs International Financial Statisticsdatabase.ExchangerateandexchangeratevolatilityAnnual anddailySDRexchange rate dataare takenfromIMFs International FinancialStatistics database. Exchange rate volatility is calculated as the standard deviation of the logrstdierenceofdailyexchangerate.KAopennessDe jurenancial openness is measured by the Chinn-Ito index. Time series data for the indexismaintainedattheirwebsitehttp://web.pdx.edu/~ito/Chinn-Ito_website.htmPrivatecapitalowPrivatecapital owdatahasbeentakenfromIMFsInternational Financial Statistics. We24IMFdenesthemastheunallocatedreservesthedierencebetweenthetotal reservesdatareportedtoIFS(fortheworldtableonForeignExchange)andtoCOFER, foreachofthecountrygroupingsmentionedabove. Itconsistsoftwocomponents:- Thetotal reserves of nonreportingcountries, i.e., thecountries withineachgrouping, whichdonotreportcurrencycompositiondatatoCOFER, andanydiscrepancybetweendataontotal reservesasreportedtoCOFERandtoIFS.- TheallocatedreservesequalsthereportersdataontotalreservesasreportedtoCOFER.16further calculated private capital ow as a percentage of real GDP of corresponding economies.Theseratiosareusedintheestimationofthemodels.5.2 EstimationofthemodelUsingDickey-FullerandPerrontests, thebpiindexwasfoundtohavestrongserialcorrela-tion. ThesecondlagofbpiwasstationaryandthemodelgavethelowestvalueforBIC.TheHausmantestsupportedthexedeectmodelovertherandomeectmodel.GDPandbpi haveverystrongcorrelation(0.95). WehavenotusedGDPinanyformoranyknowndirectproxytocalculatethebpi indexforthethecountriesovertheperiod.However, high correlation between these two variables suggests that with a large GDP countrygainsmorebargainingpoweroveritstradingpartnersandviceversa. Theuseofacurrencyby trading partners further increase the use of the currency through network eect. This alsosuggestthatwecanusebpiinsteadofGDPasanindependentvariableinourmodel. Therearesomeadvantagesof usingbpi overGDP. ThoughGDPrepresentsacountryseconomicshareintheworldmarket, however, it isdiculttounderstandhowthiscanaect othercountriesdecisiontoholdacurrencyasreservecurrency. Whereasbargainingpoweraswediscussedinearliersectionexplainstheinteractionamongdierentcountries.The data panel consists of 25 annual observations for six country groups (United States ofAmerica,Eurozone(Germany),Japan,China,UnitedKingdom,andSwitzerland)from1987to2011. Since,weareusingdataforGermanywhenEurowasnottheresosomedatapointsaremissinginthepanel data. Dataisnotavailableforall theyearsforGermanyorEurozoneandthismakesourdataaunbalancedpanel.We estimated three models (Table 6). Model I is the basic model that is discussed in mostof the literature. Under this model, lag of logit of currency share, GDP and KA openness aresignicantandpositiveassuggestedbytheliterature. Inationandexchangeratevolatilityarenegativeastheyshouldbebuttheyarenotsignicant. Inmodel IIandmodel III, wehaveusedlagofBPIindexasaproxyfortheeconomicpoweroftheeconomy. Thiscomesout to be positive and statistically signicant at 10% in both model II and III. This supportsour hypothesis that the BPI index can help in explaining the composition of currency reserve.Model II and model III suggest that the exchange rate volatility is statistically signicantat 5% and negative. The result is supported by the literature that says the share of a currencyincreasesascondenceinthateconomyincreases. Exchangeratevolatilityadverselyaectsthecondenceintheeconomythatisdenotedbynegativesignof theestimates. Weusedprivate capital owas aproxyfor market openness inmodel III. This turnedout tobeinsignicant. Wealsotriedsomeotherparameters(e.g. fdi,stockstradedonexchangeetc.)assuggestedinIMF(2012). However,allthesewereinsignicant.17Table6: ResultsofpaneldataregressionExplanatoryvariables ModelI ModelII ModelIIICoecients Pr(>t)Coecients Pr(>t)Coecients Pr(>t)Lag of Logit of currencyshare0.773 0.00 0.706 0.00 0.768 0.00GDP 0.041 0.04LagofBPI 0.003 0.07 0.003 0.08Ination -0.003 0.66KAopen 0.135 0.05 0.639 0.00Exchange rate volatility -7.374 0.11 -8.852 0.04 -10.684 0.02Privatecapitialow 0.007 0.21Intercept -0.985 0.01 -1.651 0.00 -0.439 0.01Prob>F 0.00 0.000 0.000Source: Authorscalculations.6 ApplicationtoriseoftheRenminbiChinawas sixthlargest economyin2001, but it becamethesecondlargest economyinadecade(Table1). IthasalsoconsolidateditspositionasmajortradingpartnerinAsiawhileUSAandJapanarelosingtheirshareinthisregion(Table7).Table7: ShareofTradewithJapan,USAandChinaJapan USA China2001 2011 2001 2011 2001 2011Cambodia 1 3 31 14 4 14China 17 9 16 12India 4 2 12 7 3 10Indonedia 20 14 13 7 5 13Japan 25 12 12 21SouthKorea 15 10 18 9 11 20Malaysia 16 12 18 9 5 13Mongolia 6 3 17 3 30 59Myanmar 5 5 9 0 12 31Phillipines 18 14 24 13 3 11Singapore 11 6 16 8 5 10SriLanka 5 4 21 8 2 7Thailand 19 15 16 5 13Vietnam 15 11 5 11 10 18Source: Authorscalculations;Data: IMFsDOTSThe government of China is making phased eorts to make RMB an international currency.The government is providing limited liquidity to international partners and investors and thenallowingthemtoreinvestorholdtheRMB. InitiallyChinaallowedveryfewpre-approvedprivate players to settle trade in RMB but now all Chinese private players are allowed to settletheirtradeinRMB. However, itislargelyimporterswhoaresettlingtheirtradeinRMB.Inthisprocess,privateplayersofothercountriesareaccumulatingRMB.Chinahasallowed18Figure3: LiquidityofRenminbiininternationalmarketSource: AuthorsdepictionbanksinHongKongtoopenaccountsinRMB.So,theprivateplayersfromothercountriescandeposittheirRMBearninginthebanksinHongKong. ThebanksinHongKongcanissuedebtandbondsinRMBtoprovidefurtherliquidityinthemarket. ForeignrmscanalsoissuebondsinRMBinHongKongandinvesttheproceedingsinMainlandChina. TheprocessisexplainedinFigure3.Subacchi & Drill (2010) argue China is pursuing managed internationalization along twointerrelated tracks - trade track and nancial track. The rst track focuses on cultivating useof theRMBinforeigntrade. Attheocial level, currencyswapagreementswithforeigncentral bankshavebeeninitiatedfacilitatinguseof theRMBasameansof payment. Attheprivatelevel, regulationshavebeengraduallyeasedtopermitmoretradetransactionstobeinvoicedandsettledinRMB,bypassingtraditionalinvoicingcurrencieslikethedollar.Latter track focuses on use of the RMB in international nance. Emphasis has been placed onthedevelopmentofactivemarketsforYuandepositsandYuan-denominatedbonds, mainlyoshore in the autonomous region of Hong Kong25. The amount of RMB in saving accountsinHongKongiscontinuouslyincreasing(Figure4). Alongbothtracks,initiativeshavebeenimplemented patiently in nely calibrated phases. The communist party is no stranger to theideaofLongMarch.In the next few sections, we discuss the progress that China has made to promote its tradeanduseoftheRMB.25PandabondsandDimSumbonds.196.1 CrossbordersettlementinRenminbiInvestors andenterprises wereallowedtoholdRMBdenominatedbankaccounts inHongKongsince2004, however, theamountremainverylowtill 2009(Figure4). TheChinesegovernmentallowedtradesettlementinRMBforselectedenterprisesinafewprovincesinJuly2009asapilotscheme26. GeographicalcoveragewasfurtherexpandedinJune2010. InDecember 2010,the number of eligible enterprises was increased from 365 to 67,359. Eventu-ally, theschemewasexpandedtocoverall exportandimportsettlementinRMBinMarch2012.The cross border settlement inRMB(See gure 5) anddirect investment inRMBisincreasingsince2009. TotalsettlementinRMBcrossed3trillionYuanin2012thatismorethan10%ofChinesetotaltrade.Figure4: RMBdepositinHongKongsBanksSource: Authorscalculations;Data: HKMAsmonthlypressreleaseNote: Dataistakenforendoftheyear. For2013,dataisforMarch.Figure5: CrossbordersettlementinRMB(bnyuan)Source: Authorscalculations; Data: QuarterlyreportsofPeoplesBankofChina26DetailsofpolicyinitiativesaregiveninTableA.2.206.2 SwapagreementswithcentralbanksandChiangMaiInitiativeGovernmentof Chinahassigned(andrenewedtheexpired)currencyswapagreementwithseveralcentralbankssincethenancialcrisis(Table: A.1)toprovidenancialstabilityandliquidity in the international market. Total amount involved in the currency swap agreementsis over 1.5trillionyuan. InJune2012, HKMAunveiledaprogramfor banks totapintoitsswaplinewiththePeoplesBankofChina(PBoC)iftheyareinneedofRMBliquidity.Thoughnoneoftheswaplineshasbeenused,butitindicatesthewillingnessofothercoun-triestoaccceptRMBascurrencyfortrade. ThereareafewcountriesthathavenotsignedcurrencyswapagreementwithChinabuttheyhaveshowninterestintradinginRMB.In August, 2012, the central banks of Nigeria and Tanzania added RMB to their reserves.Theybought bonds worthRMB500millionfromtheChinaDevelopment Bank. Thoughtheamount is small but it canset precedent for moreshareinthelargereserves of bankof Nigeria27( estimated$36.4inforeignexchange). OnJune23, 2011, thePBoCsignedanewbilateral local currencysettlementagreementwiththeCentral Bankof theRussianFederation.This will cover not only border trade but also general trade and economic entitiesfrombothcountries will beabletoconduct settlements andpayments for tradeof goodsandservices withacurrencyof their choice, either afreelyconvertiblecurrency, RMBortheRuble28. ThePBoCandtheBanquecentraleduLuxembourgsignedaMemorandumofUnderstandingonSept. 28,2010tofurtherpromotebilateralexchangeandcooperation29.ChinaisalsomajorcontributortotheChiangMaiInitiative(CMI),aregionallenderoflarge resort for stressed economies. China intends to play a central role in multi-lateralizationof CMI. However, this has not beenusedeectivelyduetosomestructural shortcomings(Sussangkarn2012).6.3 DirecttradingofRenminbiPeoplesBankof ChinaandBankof Japanalloweddirecttradingof JPY/RMBatTokyostock exchange and Shanghai stock exchange in June 2012. Currently, the volume of currencytradingislowbutif itincreasesinlinewiththebilateral tradethenthetwocountriesareexpectedto save a signicantamountof directtrading. China andAustralia are also makingeortstoreducecurrencyconversioncostfortheireconomicentities. ChinaandAustraliasigned agreement to start direct trading between their currencies (RMB/$A)30. Banks in someprovincesofChinaareallowedtotradeRMBdirectlywithafewothercurrencies(SeeTableA.3). China is promoting its currency as an international currency and has gained success onsomeparameters.27http://blogs.ft.com/beyond-brics/2012/08/22/africa-new-frontier-for-the-renminbi/28Source: HKMApressrelease.29Source: HKMApressrelease.30Source: Pressreleaseof PeoplesBankof Chinaon9thApril, 2013. http://www.pbc.gov.cn/publish/english/955/2013/20130409183325524305206/20130409183325524305206_.html216.4 EastAsianintegrationandChinaAdvanced economies are expected to either be stagnant or grow at a marginal rate of 1-3% innext decade31. Demography of Asia suggests that growth will come from this region. Growthopportunitiesareoneofthereasonseconomiesofthisregionwerelessaectedbytheglobalnancialcrisisandrecessioninthewesternhemisphere.AlltheeconomiesinAsia(Russiaexcluded)arehighlyintegratedwitheachother. USAis not a leading trade partner for most of the economies. USA is second lead partner of Chinaand Japan. However, in case of Japan, volume of trade with China is double the size of tradewithUSA(Seetable8).However, thereishardlyanynancial integrationintheregion. Theinvoicingcurrencyoftradebetweenthesecountriesisstill theUSDollar. Though, somecountrieshaveshownwillingness to use RMB for trade settlement and the volume of settlement in RMB is increas-ingexponentially.32Japan and Australia have already started direct trading of RMB with their respective cur-rencies. Toavoidthedelayinsettlementusingdollarandthetransactioncost, moreAsiancountries might make the switch. Our analytical transaction cost model shows private agentschoosetoadoptthecurrencyof theirlargesttradepartnerif thetransactioncostreduces.These Asian countries are in position to invoice in a regional currency or peg their currenciestoaregionalcurrency.China is getting some success in giving RMB a more prominent role in Asian trade settle-ment. ButasanalysisofthedeterminantsofaninternationalcurrencyshowscapitalmarketrestrictionsinChinawillalsohavetoberelaxed.7 ConclusionTwosimpleanalyticalmodelshelpanalyzeconditionsfortheemergenceofmultipleinterna-tional currencies. Bargainingpowerisonereasonthecurrencyof alargeeconomyisusedinternationally. Largeswitchingcosttoanewcurrencyalsoexplainstheinertiainswitch-ingtonewinternational currency. Wedevelopindicestoquantifysomeof thequalitativedeterminantsof international currencies. Thebargainingpowerindexprovidesinsightintobilateral relationships. Empirical estimationvalidates themodels sincebargainingpower,switching costs and capital account openness (which lowers transaction cost) all have positivecoecients. Exchange rate volatility, which decreases condence in a currency has a negativecoecient.31IMF, WorldEconomicOutlook, April 2013. Availableathttp://www.imf.org/external/pubs/ft/weo/2013/01/pdf/text.pdf32Financial statistics report of PBoCsays InNovember 2012, RMBsettlement incross-border tradeingoods, cross-bordertradeinservicesandothercurrentaccounts, outboundFDIandinboundFDIamountedto224.4billion,79.4billion,2.1billionand23.2billionyuanrespectively.(http://www.pbc.gov.cn/publish/english/955/2012/20121219100045372816786/20121219100045372816786_.html).22Table8: RegionalintegrationCountry Partnercountry1Asia/Total(%)21st 2ndBrunei Japan(30) SouthKorea(14) 83Cambodia China(18) Thailand/Vietnam(16) 67China EU(16) USA(12) 41India EU(14) China(13) 30Indonesia Japan(14) China(14) 67Japan China(24) USA(12) 48SouthKorea China(23) EU/Japan(10) 49Malaysia China(17) Singapore(13) 62Mongolia China(59) EU(6) 86Myanmar China(31) Thailand(28) 92Phillipines China(16) Japan(14) 60Singapore China(17) Malaysia/EU(11) 58SriLanka EU(19) India(16) 47Thailand China(16) Japan(15) 57Vietnam China(20) EU(12) 60Source: Authorscalculations;Data: IMFsDOTS1Dataistakenfor2011. Partnercountryisacountry/economicregion.The models and estimation are used to analyze the increased use of the RMB as an inter-national currency, particularlyintheAsianregion. Intraregional tradeisincreasinginEastAsiaandmostofthecountriestradeover50%withintheregion. Chinaiseithertheleadingor second leading partner for these countries. So its (pairwise) bargaining power is increasingwith all trading partners and especially over its trading partners in Asia. The economic powerindexalsosuggeststhatChinahasgainedsignicanteconomicpower.However, to increase the attractiveness of the RMB, China has to adopt more transparentruleboundpoliciesandallowfreercapital movementsandmarkets. SincetheUSnowhasseriouscompetition, itmusttakestepstodefenditsexhorbitantpriveledge. Itmustnotonly sustain its bargaining power by increasing growth, it must also reduce its twin decits inordertoreducedollarvolatility. 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Accessed: 2014-02-19.URL: http://www.eastasiaforum.org/2012/05/15/toward-a-functional-chiang-mai-initiative/25A AppendixA.1 RenminbibilateralcentralbankswapagreementsListof all thebilateral currencyswapagreementsthatPeoplesBankf of Chinahassignedwithothercentralbanks.TableA.1: RenminbibilateralcentralbankswapagreementsCountry/region Date Amount(BillionRMB)BankofIndonesia 23.03.2009 100CentralBankofArgentina 02.04.2009 70NationalBankoftheRepublicofBelarus 11.03.2009 20CentralBankofIceland 09.06.2010 3.5NewZealandReserveBank 18.04.2011 25NationalBankofKazakhstan 13.06.2011 7BankofKorea 26.10.2011 360HongKongMonetaryAuthority 22.11.2011 400BankofThailand 22.12.2012 70StateBankofPakistan 23.12.2011 10CentralBankoftheUAE 27.01.2012 35BankNegaraMalaysia 08.02.2012 180CentralBankoftheRepublicofTurkey 21.02.2012 10CentralBankofMongolia 20.03.2012 10ReserveBankofAustralia 22.03.2012 200CentralBankofUkraine 26.06.2012 15MonetoryAuthorityofSingapore 07.03.2013 300BancoCentraldoBrasil 01.04.2013 190Source: PeoplesbankofChinaAnnualGDPgrowthThisdataiscollectedfromWorldBanksdatabase.FigureA.1: AnnualGDPgowthAuthorscalculations;WorldBankdata.26PolicyinitiativestoadvanceinternationalizationofrenminbiTableA.2: TradeandnancesettlementinHongKongDate PolicyinitiativeJuly2009 ThepilotschemeforRMBtradesettlementcommencedoperation.September2009 TherstRMBsovereignbondbytheMinistryofFinanceofChina.February2010 TheHongKongMonetaryAuthorityissuedacirculartoelucidatethesupervisoryprinciplesandtheoperational arrangementsregardingthecross-borderfundowsofRMBandthedevelopmentofRMBbusinessinHongKong.June2010 The geographical coverage of the pilot scheme for RMB trade settlementwasexpanded.July2010 TheClearingAgreementforRMBbusinesswasamendedtofacilitatedevelopmentofRMBassetmanagementandinsuranceproducts.August2010 AnnouncementofapilotschemefortheRMBclearingbankandothereligibleinstitutionsoutsideMainlandChinatoinvestintheinterbankbondmarketinMainlandChina.November2010 RMBsovereignbondsissuedthroughtheCentralMoneymarketsUnit.December2010 Thenumber of eligibleenterprises inMainlandChinathat cansettlemerchandiseexportsinRMBexpandedfrom365to67,359.January2011 EnterprisesinMainlandChinaallowedtoconductandsettleoverseasdirectinvestmentinRMB,andbanksinHongKongcanprovideRMBfundstofacilitatesuchtransactions.August2011 The geographical coverage of the pilot scheme for RMB trade settlementwasfurtherexpandedtotheentireMainlandChina.October2011 ArrangementforforeignenterprisestoconductandsettleforeigndirectinvestmentintoMainlandChinainRMBformalised.December2011 Foreigninvestors allowedtoinvest inMainlandChinas bondandeq-uitymarketsthroughfundsissuedbyqualiedfundmanagementandsecuritiescompaniesinHongKongundertheRMBQualiedForeignInstitutionalInvestors(RQFII)scheme.March2012 The pilot RMB trade settlement scheme was further expanded to all theimportandexportenterprises.Apilotprogramtoallowforeigncentralbanks,HongKongandMacauclearingbanksandtradesettlement bankstoinvest oshoreRMBintheonshoreinterbankbondmarket,facilitatingtheyuansrepatriationmechanism.April2012 Quotas for the RQFII investment was increasedbyRMB50billion.ThequaliedinstitutionswereallowedtousethequotatoissueRMBA-shareETFproductslistedintheHKEX.Continuedonnextpage27TableA.2continuedfrompreviouspageDate PolicyinitiativeJune2012 HKMAunveiledaprogramforbankstotapintoitsswaplinewiththePBoCiftheyareinneedofRMBliquidity. Moreover, HKMArelaxedlimitregulationforRMBliquidityforbanks.July2012 Chinasauthoritiespledgedtoundertakenewinitiativestoencouragethird-parties to conduct RMB trade settlement and investment throughHong Kong. Moreover, new preferential treatment will be applied to theoshore RMB long-term investment in domestic captial market,althoughtherelevantdetailshavenotyetbeenreleasedTableA.3: DirectcurrencytradingwithRMBDate Province(China)Country Currency DetailsJun2011 Yunnan Laos Lao Kip(LAK)Direct exchange betweenRMB/LAK was provided bythe Fudian bank in Kunming,capitalofYunnanprovince.Jun2011 Xinnjiang Kazakhstan KazakhstanTenge(KZT)Direct exchange betweenRMB/KZT was provided bytheBOCinXinjiangprovince.Jun2011 Guangxi Vietnam VietnemeseDong(VND)TheChina-ASEANRMBclearanceand settlement center was estab-lished by ICBCin Nanning, withapilotprogramfordirectexchangebetweenRMB/VND.Jul2011 Shandong SouthKorea Korea Won(KRW)Direct exchange betweenRMB/KRW was provided byselected banks to qualied clientsinQingdao.Dec2011 Yunnan Thailand Thai Bhat(THB)Exchange between RMB/THBstarted to be oered by selectedbanks from Yunnan province inthe interbank market, after thecurrencyswaplinewassignedear-lier between China and Thailand.Direct exchange between the twocurrencieswasalsoprovided.Jun2012 China Japan Japanese Yen(JPY)ChinaandJapanannouncedtobe-gin direct trading of RMB/JPYinShanghai andTokyosinceJune2012. The JPYwill thus becomethe second major currency (aftertheUSD)tohaveadirectexchangerate against the yuan in the onshoremarketofChina.28TableA.4: BargainingpowerindexPartnercountry(s)Country(l) ASEANAustraliaBrazilChinaCIS+MongoliaEuropeanUnionFranceGermanyIndiaJapanRussiaSADCSouthAcaSwitzerlandUnitedKingdomUnitedStatesAustralia 2 0 1 1 0 1 0 0 2 3 0 1 0 0 1 13 0 0 2 0 0 0 0 2 3 0 2 2 0 1 13 0 1 3 0 0 0 0 2 4 0 1 1 1 1 1Brazil 0 0 0 1 0 1 0 1 1 1 0 1 0 0 0 10 0 0 2 1 1 1 1 1 1 1 2 2 1 1 21 0 0 0 1 1 1 1 1 1 1 1 1 1 1 2China 3 4 1 0 4 1 1 1 0 5 6 1 0 1 1 35 7 3 0 4 2 2 3 3 12 5 3 3 1 2 713 23 16 0 11 5 4 6 10 21 10 18 14 4 6 14EU 16 18 30 12 60 67 64 65 31 18 60 44 0 72 59 2214 18 28 16 44 65 66 63 22 15 55 35 35 71 53 2110 12 21 16 38 64 66 63 14 11 42 23 26 67 51 17France 2 2 2 1 6 10 0 13 3 2 4 7 0 10 10 31 2 3 2 2 8 0 10 2 2 3 4 3 10 9 31 1 2 1 3 7 0 9 1 1 3 3 2 8 6 2Germany 4 4 7 4 17 15 18 0 8 5 17 5 0 29 15 53 3 6 5 9 14 17 0 4 4 12 8 11 26 12 52 3 5 5 6 14 18 0 3 3 7 6 8 26 12 4India 1 1 0 0 1 0 0 0 0 1 2 2 0 0 1 11 1 1 1 1 0 0 0 0 1 1 1 1 0 1 13 3 2 2 1 1 1 1 0 1 1 5 4 1 1 2Japan 20 22 6 15 3 3 3 4 7 0 4 5 0 4 4 1515 16 4 17 2 2 2 3 4 0 3 4 5 3 3 1011 14 4 9 2 1 1 1 2 0 3 4 6 3 2 5Korea 4 4 1 3 1 1 1 1 1 5 1 0 0 1 1 34 6 2 7 1 1 1 1 2 6 1 2 2 1 1 35 6 3 7 2 1 1 1 2 6 3 2 2 1 1 3Mexico 0 0 3 0 0 0 0 0 0 1 0 0 0 0 0 80 0 2 1 0 0 0 1 0 1 0 0 0 0 0 120 1 2 1 0 0 0 1 0 1 0 0 1 0 0 12MiddleEast 4 3 7 2 0 3 3 2 17 7 2 3 0 2 3 34 4 3 3 0 2 3 2 8 7 2 5 7 2 2 26 3 4 6 0 2 3 2 24 11 1 5 7 2 3 4Russia 0 0 0 3 4 0 1 0 2 1 0 0 0 0 0 0Continuedonnextpage29TableA.4continuedfrompreviouspagePartnercountry(s)Country(l) ASEANAustraliaBrazilChinaCIS+MongoliaEuropeanUnionFranceGermanyIndiaJapanRussiaSADCSouthAcaSwitzerlandUnitedKingdomUnitedStates0 0 1 2 13 2 1 2 1 1 0 0 0 2 1 01 0 1 2 8 3 2 4 1 2 0 0 0 1 1 1SouthAfrica 0 0 0 0 0 0 0 1 0 1 0 10 0 0 1 00 1 1 0 0 1 0 1 2 1 0 4 0 0 1 01 0 1 1 0 1 0 1 2 1 0 4 0 1 1 0Switzerland 1 1 1 0 1 3 3 5 1 1 2 1 0 0 2 11 1 1 0 2 3 3 4 4 1 2 1 1 0 2 11 1 1 0 2 3 3 4 4 1 1 2 2 0 4 1UK 3 5 3 1 4 7 8 7 6 3 4 9 0 6 0 42 5 3 2 3 7 9 8 5 2 3 8 8 6 0 41 3 2 2 2 5 6 6 2 1 2 3 4 4 0 3USA 17 16 21 10 0 7 7 7 14 26 5 16 0 7 11 016 14 24 16 5 8 8 9 12 25 8 12 10 9 15 08 7 13 12 6 5 4 5 7 12 3 9 8 8 8 0ASEAN 0 11 2 5 0 2 2 2 7 13 2 0 0 2 3 60 14 2 8 0 2 2 2 8 14 2 0 3 2 3 60 14 4 10 0 2 2 2 10 15 2 0 5 2 3 5Source: Authorscalculations;Data: IMFsDOTS.Note: Foreachcountryindexiscalculatedfor1991,2001and2011.30TableA.5: DirectTransactionCostIndexPartnercurrency(s)Country(l) CurrencyshareEuroJapaneseYenPoundsterlingAustraliandollarSwissFrancCanadiandollarSwedishKronaNewZealanddollarKoreanWonSingaporedollarMexicanpesoIndianrupeeRussianroubleChineseRMBTurkishliraSouthAfricanRandBrazilianrealTaiwandollarMalaysianringgitThaiBahtPhilipinespesoIndonesianrupiah19.5 9.5 6.4 3.8 3.2 2.6 1.1 0.8 0.8 0.7 0.6 0.5 0.5 0.4 0.4 0.4 0.3 0.2 0.1 0.1 0.1 0.1USdollar 42.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.3 0.3Euro 19.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.2 0.4 0.5 0.6 0.7Japaneseyen 9.5 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.3 0.3 0.3 0.4 0.8 1.1 1.3 1.4Poundsterling 6.4 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.2 0.2 0.2 0.2 0.3 0.3 0.4 0.4 0.4 0.5 0.7 1.1 1.6 1.8 2.1Australiandollar 3.8 0.0 0.0 0.0 0.1 0.1 0.1 0.2 0.3 0.3 0.4 0.4 0.6 0.6 0.6 0.7 0.7 0.8 1.1 1.9 2.7 3.1 3.5Swissfranc 3.2 0.0 0.0 0.0 0.1 0.1 0.1 0.3 0.4 0.4 0.4 0.5 0.7 0.7 0.7 0.9 0.9 0.9 1.3 2.3 3.3 3.7 4.2Canadiandollar 2.6 0.0 0.0 0.1 0.1 0.1 0.1 0.3 0.5 0.5 0.5 0.6 0.8 0.8 0.9 1.0 1.0 1.1 1.6 2.7 3.9 4.5 5.0HongKongdollar 1.2 0.0 0.1 0.1 0.2 0.3 0.3 0.8 1.1 1.1 1.2 1.3 1.8 1.9 2.0 2.3 2.3 2.5 3.5 6.1 8.8 10.1 11.2Swedishkrona 1.1 0.0 0.1 0.1 0.2 0.3 0.3 0.8 1.1 1.2 1.3 1.5 1.9 2.0 2.1 2.5 2.5 2.7 3.8 6.6 9.5 10.8 12.1NewZealanddollar 0.8 0.1 0.1 0.2 0.3 0.4 0.5 1.1 1.6 1.7 1.8 2.0 2.7 2.8 2.9 3.4 3.5 3.7 5.3 9.1 13.1 14.9 16.6Koreanwon 0.8 0.1 0.1 0.2 0.3 0.4 0.5 1.2 1.7 1.7 1.9 2.1 2.8 2.9 3.1 3.6 3.7 3.9 5.5 9.5 13.7 15.7 17.5Singaporedollar 0.7 0.1 0.1 0.2 0.4 0.4 0.5 1.3 1.8 1.9 2.0 2.3 3.0 3.1 3.3 3.8 3.9 4.1 5.9 10.2 14.7 16.8 18.7Norwegiankrone 0.7 0.1 0.2 0.2 0.4 0.5 0.6 1.4 1.9 2.0 2.1 2.4 3.2 3.4 3.5 4.1 4.2 4.4 6.3 10.9 15.7 18.0 20.0Mexicanpeso 0.6 0.1 0.2 0.2 0.4 0.5 0.6 1.5 2.0 2.1 2.3 2.5 3.4 3.5 3.7 4.3 4.4 4.7 6.7 11.5 16.6 18.9 21.1Indianrupee 0.5 0.1 0.2 0.3 0.6 0.7 0.8 1.9 2.7 2.8 3.0 3.4 4.5 4.7 4.9 5.7 5.8 6.2 8.8 15.2 21.9 25.0 27.9RussianRouble 0.5 0.1 0.2 0.3 0.6 0.7 0.8 2.0 2.8 2.9 3.1 3.5 4.7 4.9 5.2 6.0 6.1 6.5 9.3 16.0 23.1 26.3 29.4Chineserenminbi 0.4 0.1 0.2 0.4 0.6 0.7 0.9 2.1 2.9 3.1 3.3 3.7 4.9 5.2 5.4 6.3 6.4 6.8 9.7 16.8 24.2 27.6 30.7Polishzloty 0.4 0.1 0.3 0.4 0.7 0.8 0.9 2.3 3.1 3.3 3.5 4.0 5.2 5.5 5.8 6.7 6.9 7.3 10.4 17.9 25.8 29.5 32.8Turkishnewlira 0.4 0.1 0.3 0.4 0.7 0.9 1.0 2.5 3.4 3.6 3.8 4.3 5.7 6.0 6.3 7.4 7.5 8.0 11.4 19.6 28.3 32.3 36.0Continuedonnextpage31TableA.5continuedfrompreviouspagePartnercurrency(s)Country(l) CurrencyshareEuroJapaneseYenPoundsterlingAustraliandollarSwissFrancCanadiandollarSwedishKronaNewZealanddollarKoreanWonSingaporedollarMexicanpesoIndianrupeeRussianroubleChineserenminbiTurkishliraSouthAfricanRandBrazilianrealTaiwandollarMalaysianringgitThaiBahtPhilipinespesoIndonesianrupiahSouthAfricanrand 0.4 0.1 0.3 0.4 0.7 0.9 1.0 2.5 3.5 3.7 3.9 4.4 5.8 6.1 6.4 7.5 7.7 8.1 11.6 20.0 28.8 32.8 36.6Brazilianreal 0.3 0.1 0.3 0.5 0.8 0.9 1.1 2.7 3.7 3.9 4.1 4.7 6.2 6.5 6.8 8.0 8.1 8.6 12.2 21.1 30.4 34.7 38.7Danishkrone 0.3 0.2 0.4 0.5 0.9 1.1 1.3 3.2 4.4 4.7 5.0 5.6 7.4 7.8 8.2 9.6 9.8 10.3 14.8 25.5 36.7 41.9 46.6Taiwandollar 0.2 0.2 0.4 0.7 1.1 1.3 1.6 3.8 5.3 5.5 5.9 6.7 8.8 9.3 9.7 11.4 11.6 12.2 17.5 30.3 43.5 49.7 55.4Hungarianforint 0.2 0.2 0.5 0.7 1.2 1.5 1.8 4.2 5.8 6.1 6.5 7.4 9.8 10.3 10.8 12.6 12.8 13.5 19.4 33.5 48.2 55.0 61.3Malaysianringgit 0.1 0.4 0.8 1.1 1.9 2.3 2.7 6.6 9.1 9.5 10.2 11.5 15.2 16.0 16.8 19.6 20.0 21.1 30.3 52.2 75.2 85.8 95.6Thaibaht 0.1 0.5 1.1 1.6 2.7 3.3 3.9 9.5 13.1 13.7 14.7 16.6 21.9 23.1 24.2 28.3 28.8 30.4 43.5 75.2 108.3 123.5 137.6Czechkoruna 0.1 0.5 1.1 1.6 2.8 3.3 4.0 9.5 13.1 13.8 14.7 16.6 22.0 23.1 24.2 28.4 28.9 30.5 43.7 75.4 108.5 123.8 138.0Philipinepeso 0.1 0.6 1.3 1.8 3.1 3.7 4.5 10.8 14.9 15.7 16.8 18.9 25.0 26.3 27.6 32.3 32.8 34.7 49.7 85.8 123.5 140.9 157.0Chileanpeso 0.1 0.6 1.3 1.9 3.2 3.8 4.6 11.2 15.4 16.2 17.3 19.5 25.8 27.1 28.4 33.2 33.8 35.8 51.2 88.4 127.2 145.1 161.7Indonesianrupiah 0.1 0.7 1.4 2.1 3.5 4.2 5.0 12.1 16.6 17.5 18.7 21.1 27.9 29.4 30.7 36.0 36.6 38.7 55.4 95.6 137.6 157.0 175.0Israelinewshekel 0.1 0.7 1.4 2.1 3.5 4.2 5.1 12.2 16.8 17.6 18.8 21.2 28.1 29.6 31.0 36.2 36.9 39.0 55.8 96.4 138.7 158.2 176.3Colombianpeso 0.0 1.0 2.1 3.1 5.3 6.3 7.6 18.3 25.2 26.5 28.3 32.0 42.3 44.5 46.6 54.5 55.5 58.7 84.0 145.0 208.7 238.1 265.4SaudiRiyal 0.0 1.7 3.5 5.2 8.8 10.5 12.7 30.6 42.1 44.2 47.3 53.4 70.7 74.3 77.8 91.0 92.6 97.9 140.2 242.0 348.4 397.5 443.032TableA.6: IndirectTransactionCostIndexPartnercurrency(s)Country(l) CurrencyshareEuroJapaneseYenPoundsterlingAustraliandollarSwissFrancCanadiandollarSwedishKronaNewZealanddollarKoreanWonSingaporedollarMexicanpesoIndianrupeeRussianroubleChineseRenminbiTurkishliraSouthAfricanRandBrazilianrealTaiwandollarMalaysianringgitThaiBahtPhilipinespesoIndonesianrupiah19.5 9.5 6.4 3.8 3.2 2.6 1.1 0.8 0.8 0.7 0.6 0.5 0.5 0.4 0.4 0.4 0.3 0.2 0.1 0.1 0.1 0.1USdollar 42.4Euro 19.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Japaneseyen 9.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Poundsterling 6.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Australiandollar 3.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Swissfranc 3.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Canadiandollar 2.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Hong Kong dollar 1.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Swedishkrona 1.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0NewZealanddol-lar0.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Koreanwon 0.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Singaporedollar 0.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Norwegiankrone 0.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Mexicanpeso 0.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Indianrupee 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0RussianRouble 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Chineserenminbi 0.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Polishzloty 0.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Continuedonnextpage33TableA.6continuedfrompreviouspagePartnercurrency(s)Country(l) CurrencyshareEuroJapaneseYenPoundsterlingAustraliandollarSwissFrancCanadiandollarSwedishKronaNewZealanddollarKoreanWonSingaporedollarMexicanpesoIndianrupeeRussianroubleChineseRenminbiTurkishliraSouthAfricanRandBrazilianrealTaiwandollarMalaysianringgitThaiBahtPhilipinespesoIndonesianrupiahTurkishnewlira 0.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1South Africanrand0.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1Brazilianreal 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1Danishkrone 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1Taiwandollar 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1Hungarianforint 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1Malaysianringgit 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1Thaibaht 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1Czechkoruna 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1Philipinepeso 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1Chileanpeso 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1Indonesian ru-piah0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.2Israelinewshekel 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.2Colombianpeso 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.2SaudiRiyal 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.234TableA.7: DirectTransactionCostIndex(2001-2010)Partnercurrency(s)Country(l) YearUSdollarEuroJapaneseYenPoundsterlingAustraliandollarSwissFrancKoreanWonSingaporedollarMexicanpesoIndianrupeeRussianroubleChineseRenminbiSouthAfricanRandBrazilianrealMalaysianringgitThaiBahtPhilipinespesoIndonesianrupiahSaudiriyalUSdollar 2010 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.2 0.2 0.3 0.3 0.82007 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.4 0.2 0.4 0.4 0.82004 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.1 0.1 0.5 0.1 0.2 0.9 0.2 1.1 0.4 1.32001 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.1 0.2 0.1 5.8 0.0 0.1 0.6 0.3 1.1 1.0 0.7Euro 2010 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.4 0.5 0.6 0.7 1.72007 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.2 0.1 0.2 0.1 0.3 0.8 0.6 1.0 1.0 1.92004 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.3 0.2 1.1 0.1 0.4 2.1 0.5 2.7 1.0 3.02001 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.5 0.3 13.7 0.1 0.2 1.4 0.7 2.6 2.3 1.6JPY 2010 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.2 0.2 0.2 0.2 0.3 0.3 0.8 1.1 1.3 1.4 3.52007 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.2 0.2 0.3 0.3 0.5 0.3 0.6 1.7 1.2 2.2 2.1 4.12004 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.2 0.2 0.6 0.3 2.0 0.3 0.7 3.7 1.0 4.8 1.8 5.42001 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.2 0.2 0.7 0.5 22.1 0.2 0.4 2.3 1.1 4.2 3.7 2.5GBP 2010 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.2 0.2 0.3 0.3 0.4 0.4 0.5 1.1 1.6 1.8 2.1 5.22007 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.2 0.2 0.4 0.4 0.6 0.3 0.7 2.0 1.4 2.5 2.4 4.72004 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.3 0.2 0.7 0.4 2.5 0.3 0.9 4.7 1.2 6.1 2.3 6.82001 0.0 0.0 0.0 0.0 0.1 0.1 0.4 0.3 0.4 1.3 0.9 39.8 0.3 0.6 4.1 2.0 7.5 6.7 4.5AUD 2010 0.0 0.0 0.0 0.0 0.1 0.1 0.3 0.4 0.4 0.6 0.6 0.6 0.7 0.8 1.9 2.7 3.1 3.5 8.82007 0.0 0.0 0.0 0.0 0.1 0.1 0.5 0.5 0.5 0.9 0.8 1.3 0.7 1.5 4.5 3.1 5.7 5.5 10.62004 0.0 0.0 0.0 0.0 0.1 0.1 0.6 0.7 0.6 2.1 1.1 6.8 0.9 2.5 12.9 3.3 16.6 6.2 18.62001 0.0 0.0 0.0 0.1 0.2 0.2 1.2 0.9 1.1 4.0 2.7 120.2 1.0 1.9 12.4 6.1 22.7 20.3 13.6Continuedonnextpage35TableA.7continuedfrompreviouspagePartnercurrency(s)Country(l) YearUSdollarEuroJapaneseYenPoundsterlingAustraliandollarSwissFrancKoreanWonSingaporedollarMexicanpesoIndianrupeeRussianroubleChineseRenminbiSouthAfricanRandBrazilianrealMalaysianringgitThaiBahtPhilipinespesoIndonesianrupiahSaudiriyalSwissfranc 2010 0.0 0.0 0.0 0.0 0.1 0.1 0.4 0.4 0.5 0.7 0.7 0.7 0.9 0.9 2.3 3.3 3.7 4.2 10.52007 0.0 0.0 0.0 0.0 0.1 0.1 0.5 0.5 0.4 0.8 0.8 1.3 0.6 1.5 4.4 3.0 5.6 5.3 10.32004 0.0 0.0 0.0 0.0 0.1 0.1 0.6 0.7 0.6 2.0 1.1 6.8 0.9 2.5 12.8 3.3 16.6 6.2 18.62001 0.0 0.0 0.0 0.1 0.2 0.1 0.8 0.6 0.8 2.9 1.9 86.9 0.7 1.4 9.0 4.4 16.4 14.7 9.9Koreanwon 2010 0.0 0.1 0.1 0.2 0.3 0.4 1.7 1.9 2.1 2.8 2.9 3.1 3.7 3.9 9.5 13.7 15.7 17.5 44.22007 0.0 0.1 0.2 0.2 0.5 0.5 3.0 3.0 2.6 4.9 4.6 7.7 3.8 8.8 26.0 17.7 32.8 31.4 61.02004 0.0 0.1 0.2 0.2 0.6 0.6 3.1 3.9 3.2 10.8 5.6 36.0 4.8 13.2 67.9 17.5 87.6 32.6 98.42001 0.1 0.1 0.2 0.4 1.2 0.8 6.2 4.7 6.0 21.7 14.4 646.6 5.3 10.5 66.8 32.9 122.2 109.3 73.4SGD 2010 0.0 0.1 0.1 0.2 0.4 0.4 1.9 2.0 2.3 3.0 3.1 3.3 3.9 4.1 10.2 14.7 16.8 18.7 47.32007 0.0 0.1 0.2 0.2 0.5 0.5 3.0 2.9 2.6 4.8 4.6 7.6 3.8 8.7 25.7 17.5 32.5 31.1 60.42004 0.1 0.1 0.2 0.3 0.7 0.7 3.9 4.9 4.0 13.6 7.0 45.4 6.1 16.6 85.5 22.1 110.4 41.0 124.02001 0.0 0.1 0.2 0.3 0.9 0.6 4.7 3.6 4.6 16.5 11.0 493.0 4.0 8.0 50.9 25.1 93.1 83.3 56.0MXN 2010 0.0 0.1 0.2 0.2 0.4 0.5 2.1 2.3 2.5 3.4 3.5 3.7 4.4 4.7 11.5 16.6 18.9 21.1 53.42007 0.0 0.1 0.2 0.2 0.5 0.4 2.6 2.6 2.3 4.3 4.1 6.8 3.3 7.7 22.9 15.6 28.9 27.7 53.82004 0.0 0.1 0.2 0.2 0.6 0.6 3.2 4.0 3.3 11.2 5.7 37.1 5.0 13.6 70.0 18.1 90.4 33.6 101.52001 0.1 0.1 0.2 0.4 1.1 0.8 6.0 4.6 5.8 21.1 14.0 628.1 5.1 10.2 64.9 32.0 118.7 106.1 71.3Indianrupee 2010 0.0 0.1 0.2 0.3 0.6 0.7 2.8 3.0 3.4 4.5 4.7 4.9 5.8 6.2 15.2 21.9 25.0 27.9 70.72007 0.1 0.2 0.3 0.4 0.9 0.8 4.9 4.8 4.3 7.9 7.5 12.5 6.2 14.3 42.2 28.8 53.3 51.0 99.12004 0.1 0.3 0.6 0.7 2.1 2.0 10.8 13.6 11.2 38.2 19.6 126.9 17.1 46.5 239.2 61.7 309.0 114.7 346.92001 0.2 0.5 0.7 1.3 4.0 2.9 21.7 16.5 21.1 76.1 50.5 2266.9 18.5 36.7 234.3 115.4 428.3 383.0 257.4RUB 2010 0.1 0.1 0.2 0.3 0.6 0.7 2.9 3.1 3.5 4.7 4.9 5.2 6.1 6.5 16.0 23.1 26.3 29.4 74.3Continuedonnextpage36TableA.7continuedfrompreviouspagePartnercurrency(s)Country(l) YearUSdollarEuroJapaneseYenPoundsterlingAustraliandollarSwissFrancKoreanWonSingaporedollarMexicanpesoIndianrupeeRussianroubleChineseRenminbiSouthAfricanRandBrazilianrealMalaysianringgitThaiBahtPhilipinespesoIndonesianrupiahSaudiriyal2007 0.1 0.1 0.3 0.4 0.8 0.8 4.6 4.6 4.1 7.5 7.1 11.8 5.9 13.5 40.1 27.3 50.6 48.4 94.02004 0.1 0.2 0.3 0.4 1.1 1.1 5.6 7.0 5.7 19.6 10.0 65.1 8.8 23.8 122.6 31.7 158.4 58.8 177.82001 0.1 0.3 0.5 0.9 2.7 1.9 14.4 11.0 14.0 50.5 33.5 1504.4 12.3 24.4 155.5 76.6 284.2 254.2 170.8CNY 2010 0.1 0.1 0.2 0.4 0.6 0.7 3.1 3.3 3.7 4.9 5.2 5.4 6.4 6.8 16.8 24.2 27.6 30.7 77.82007 0.1 0.2 0.5 0.6 1.3 1.3 7.7 7.6 6.8 12.5 11.8 19.6 9.7 22.5 66.5 45.3 84.0 80.3 156.12004 0.5 1 2.0 3 7 7 36 45 37 127 65 422 57 155 795 205 1027 382 11532001 6 14 22 40 120 87 647 493 628 2267 1504 67531 551 1093 6979 3437 12758 11410 7667ZAR 2010 0.1 0.1 0.3 0.4 0.7 0.9 3.7 3.9 4 6 6 6 8 8 20 29 33 37 932007 0.1 0.1 0.3 0.3 0.7 0.6 3.8 3.8 3.3 6.2 5.9 9.7 4.8 11.1 32.9 22.5 41.6 39.8 77.32004 0.1 0.1 0.3 0.3 1 1 5 6 5 17 9 57 8 21 107 28 138 51 1552001 0.0 0.1 0.2 0.3 1.0 0.7 5.3 4.0 5.1 18.5 12.3 550.8 4.5 8.9 56.9 28.0 104.1 93.1 62.5BRL 2010 0.1 0.1 0.3 0.5 0.8 0.9 3.9 4.1 4.7 6.2 6.5 6.8 8.1 8.6 21.1 30.4 34.7 38.7 97.92007 0.1 0.3 0.6 0.7 1.5 1.5 8.8 8.7 7.7 14.3 13.5 22.5 11.1 25.8 76.2 51.9 96.2 92.0 178.82004 0.2 0.4 0.7 0.9 2.5 2.5 13.2 16.6 13.6 46.5 23.8 154.5 20.8 56.6 291.2 75.2 376.2 139.7 422.32001 0.1 0.2 0.4 0.6 1.9 1.4 10.5 8.0 10.2 36.7 24.4 1093.1 8.9 17.7 113.0 55.6 206.5 184.7 124.1MYR 2010 0.2 0.4 0.8 1.1 1.9 2.3 9.5 10.2 11.5 15.2 16.0 16.8 20.0 21.1 52.2 75.2 85.8 95.6 242.02007 0.4 0.8 1.7 2.0 4.5 4.4 26.0 25.7 22.9 42.2 40.1 66.5 32.9 76.2 225.3 153.6 284.5 272.1 528.82004 0.9 2.1 3.7 4.7 12.9 12.8 67.9 85.5 70.0 239.2 122.6 795.3 107.0 291.2 1499.1 386.9 1936.4 719.1 2173.92001 0.6 1.4 2.3 4.1 12.4 9.0 66.8 50.9 64.9 234.3 155.5 6979.1 56.9 113.0 721.3 355.2 1318.5 1179.2 792.4Thaibaht 2010 0.2 0.5 1.1 1.6 2.7 3.3 13.7 14.7 16.6 21.9 23.1 24.2 28.8 30.4 75.2 108.3 123.5 137.6 348.42007 0.2 0.6 1.2 1.4 3.1 3.0 17.7 17.5 15.6 28.8 27.3 45.3 22.5 51.9 153.6 104.7 193.9 185.4 360.4Continuedonnextpage37TableA.7continuedfrompreviouspagePartnercurrency(s)Country(l) YearUSdollarEuroJapaneseYenPoundsterlingAustraliandollarSwissFrancKoreanWonSingaporedollarMexicanpesoIndianrupeeRussianroubleChineseRenminbiSouthAfricanRandBrazilianrealMalaysianringgitThaiBahtPhilipinespesoIndonesianrupiahSaudiriyal2004 0.2 0.5 1.0 1.2 3.3 3.3 17.5 22.1 18.1 61.7 31.7 205.3 27.6 75.2 386.9 99.9 499.8 185.6 561.12001 0.3 0.7 1.1 2.0 6.1 4.4 32.9 25.1 32.0 115.4 76.6 3436.9 28.0 55.6 355.2 174.9 649.3 580.7 390.2PHP 2010 0.3 0.6 1.3 1.8 3.1 3.7 15.7 16.8 18.9 25.0 26.3 27.6 32.8 34.7 85.8 123.5 140.9 157.0 397.52007 0.4 1.0 2.2 2.5 5.7 5.6 32.8 32.5 28.9 53.3 50.6 84.0 41.6 96.2 284.5 193.9 359.3 343.6 667.82004 1.1 2.7 4.8 6.1 16.6 16.6 87.6 110.4 90.4 309.0 158.4 1027.3 138.2 376.2 1936.4 499.8 2501.2 928.9 2808.02001 1.1 2.6 4.2 7.5 22.7 16.4 122.2 93.1 118.7 428.3 284.2 12757.8 104.1 206.5 1318.5 649.3 2410.2 2155.6 1448.5IDR 2010 0.3 0.7 1.4 2.1 3.5 4.2 17.5 18.7 21.1 27.9 29.4 30.7 36.6 38.7 95.6 137.6 157.0 175.0 443.02007 0.4 1.0 2.1 2.4 5.5 5.3 31.4 31.1 27.7 51.0 48.4 80.3 39.8 92.0 272.1 185.4 343.6 328.6 638.62004 0.4 1.0 1.8 2.3 6.2 6.2 32.6 41.0 33.6 114.7 58.8 381.5 51.3 139.7 719.1 185.6 928.9 345.0 1042.92001 1.0 2.3 3.7 6.7 20.3 14.7 109.3 83.3 106.1 383.0 254.2 11410.0 93.1 184.7 1179.2 580.7 2155.6 1927.8 1295.4SaudiRiyal 2010 0.8 1.7 3.5 5.2 8.8 10.5 44.2 47.3 53.4 70.7 74.3 77.8 92.6 97.9 242.0 348.4 397.5 443.0 1121.52007 0.8 1.9 4.1 4.7 10.6 10.3 61.0 60.4 53.8 99.1 94.0 156.1 77.3 178.8 528.8 360.4 667.8 638.6 1241.22004 1.3 3.0 5.4 6.8 18.6 18.6 98.4 124.0 101.5 346.9 177.8 1153.3 155.2 422.3 2173.9 561.1 2808.0 1042.9 3152.42001 0.7 1.6 2.5 4.5 13.6 9.9 73.4 56.0 71.3 257.4 170.8 7667.2 62.5 124.1 792.4 390.2 1448.5 1295.4 870.5NoteJPY:JapaneseYen,GBP:Poundsterling,AUD:Australiandollar,SGD:Singaporedollar,MXN:Mexicanpeso,RUB:RussianRouble,CNY:Chineserenminbi,ZAR:SouthAfricanrand,BRL:Brazilianreal,MYR:Malaysianringgit,IDR:Indonesianrupiah,PHP:Philipinepeso38