Journal of Global Economics

Regional Currency and Regional Trade Integration

Abstract

Huidong He

This paper put forward the concept of most frequently used regional currency and discovers there is a U-shape between regional trade integration and it. We choose sixteen in this paper which including all types of regional economic cooperation organisations at the national level. When the proportion of most frequently used regional currency is low, the use of this currency impedes the regional trade. But it promotes the regional trade when it passes the bottom of the U-shape. The transaction cost of the currency contributes a lot to explain this U-shape. Currency status and the political game also act as a significant role. While the proportion of the most frequently used regional currency is relatively low, using this currency is detrimental to the regional trade of the global countries.