Why Some States Added the Renminbi: A Political Signal, Not Just Economics

What the Paper Asks

Why did 37 central banks add China’s renminbi (RMB) to their reserves since 2010 while most central banks held back? Steven Liao and Daniel McDowell ask whether reserve-currency choices reflect economic calculations alone or also signal states’ preferences about the global order—specifically, support for the existing US-led liberal order versus an emerging China-centered alternative.

How the Authors Studied It

The authors compile a new list of 37 central banks that adopted RMB reserves after 2010 and combine that information with United Nations General Assembly (UNGA) ideal-point estimates to capture each state’s foreign-policy alignment relative to the United States and China. Using statistical analysis that accounts for conventional economic controls (such as trade links, financial openness, and transaction needs), they test whether political alignment with or distance from major powers predicts early adoption of RMB reserves.

Key Findings

• States that are politically distant from the United States and closer to China on UNGA voting measures were more likely to add RMB to their reserve portfolios.
• Political alignment with international order preferences predicts RMB adoption better than standard economic explanations tied to transaction needs, portfolio optimization, or instrumental considerations.
• Adopting RMB functions as a political act and a signal of support for a revised global order or diminished American influence, not merely a technocratic financial decision.

Why This Matters

The paper reframes currency internationalization as a tool of foreign-policy signaling: reserve choices reveal states’ geopolitical orientations and preferences about international order. These findings matter for scholars of international monetary relations and policymakers monitoring how China’s financial footprint is expanding—not only through markets and institutions, but through symbolic acts embedded in central-bank behavior.