Positions and Prospects of Emerging Market Economies’ Currencies

Abstract

Over the past two decades of the 21st century, there has been an increase in the role of the currencies of emerging markets in the global foreign exchange market, but their positions in the international monetary system have not significantly changed. The article demonstrates the continuing gap between the role of the leading emerging market economies in the global economy and finance and the position of their currencies in the international monetary system. This gap is driven by lower liquidity premiums for the currencies of EME countries, relatively underdevelopment of their financial systems and greater financial instability, restrictions on the placement of securities denominated in national currencies on international financial markets, as well as geopolitical factors (including the risks of imposing sanctions regimes by the developed countries). It is shown that the internationalization of the EME currencies is facilitated by such factors as internal financial stability, the relative development of national financial markets and a significant role of issuing countries in world trade. On the example of China, the relative success of the policy of internationalization of the yuan is shown, on the example of Mexico and Russia, the role of participation in regional integration associations to expand the external circulation of national currencies. There is an increase in the role of geopolitical factors in determining the positions of individual EME currencies, especially since 2022. The scenario of fragmentation of the international monetary and financial system is considered, which implies a relative weakening of the positions of current leading world currencies with a relative strengthening of the positions of the individual EME currencies (primarily Chinese yuan). Measures are proposed to strengthen the positions of EME currencies in the new geopolitical conditions: activation of interaction processes in regional and mega-regional associations, formation of payment and settlement systems within them in national currencies using digital technologies, creation of regional markets for securities denominated in national currencies, the conclusion and activation of multilateral currency swap agreements between the central banks of EME countries.