Currency competition: Currency internationalization potential assessment using fuzzy logic approach

Abstract

Frequently noted inadequately explored connections between currency internationalization and expected change in the polarity of the international monetary system in the international relations literature are commanding the renewed attention and vigorous debate for more international monetary arena studies. This paper examines the potential of competing currencies to internationalize. For the first time, we utilize a fuzzy logic-based multi-dimensional model assessing the internationalization potential of 14 competing currencies separately in 2020 to predict whether the international monetary system is likely to remain unipolar and U.S. dollar-based or evolve into a multipolar international monetary arena. The results suggest comparable levels of currency internationalization exist, indicating that the international monetary system may be further shaped into a more competitive (multipolar) monetary environment, controlling for economic, convertibility, monetary stability, political and legal factors. Finally, our results have policy implications since determined currency internationalization potential levels may facilitate economists and policymakers better understanding of which currencies may play an increasingly large role in becoming a dominant international currency in the international monetary system.