Currency Internationalisation and Currency Hierarchy in Emerging Economies: The Role of the Brazilian Real

Currency internationalisation, often defined by the use of a local currency beyond the national frontier, has been a topic widely discussed in the literature. The recent rise of currencies from emerging market economies in the international market has suggested that some peripheral currencies have become more internationalised. However, their position in the currency hierarchy, which is formed by the US dollar at the top and other central currencies in an intermediate position, has remained the same. Despite the growing participation of emerging currencies in the international market, the literature focuses primarily on the internationalisation of central currencies, with the exception of the Chinese renminbi. Additionally, most empirical studies in this literature focus on a single dimension or analyse a general degree of currency internationalisation. The general objective of this thesis is to investigate the nature and the determinants of the internationalisation of central and peripheral currencies. This thesis focuses on the types of currency internationalisation, which are reflected in the currency hierarchy, and adopts a Post Keynesian perspective to shed light on the subordinate position of peripheral currencies in the International Monetary System. A cluster analysis is applied to evaluate the different types of currency internationalisation, followed by a panel data on the determinants of each of these dimensions. Lastly, this thesis conducts semi-structured interviews to understand the nature of the internationalisation of the Brazilian real, which is an emerging currency that has been more used by non-residents recently. As a general conclusion, this thesis suggests that emerging market currencies are mainly internationalised as a short-term investment currency, which reinforces their subordinate position in the currency hierarchy.