Assisting regulators in building regional currency arrangements to improve economic development: Realising Virtuous Currency Internationalisation

Drs Belfrage and Nilsson have been helping to shape policy at the South American trade bloc Mercosur, through close work with the Brazilian Central Bank.

International consensus on monetary integration pressurizes developing economies to open up all functions of their currencies to non-nationals. However, University of Liverpool-led research finds that wholesale liberalisation renders these economies vulnerable to currency speculation and encourages financialisation due to their currencies’ subordination in the US$-dominated global financial system. This exposes virtuous development dynamics to harmful volatility. We have convinced the Brazilian Central Bank and Securities and Exchange Commission to adopt an alternative strategy of virtuous currency internationalisation, entailing concrete policy measures to minimize exposure to this system and facilitate trade-oriented regional integration through the development of local currency payment systems.


International policy consensus on development stipulates fostering efficient markets. Financial markets are here perceived as crucial for capital allocation. Wholesale liberalisation of currencies contributes to this aim, pushing developing countries to comply. The results, however, have been unfortunate, with South Africa's recent economic woes as an example. Academic research supporting wholesale currency internationalisation builds on New Keynesian Economics. This research challenges this consensus and proposes an alternative pathway to development, combining empirical findings on financialisation with theoretical insights derived from Regulation Theory and Post Keynesian Theory.


Research by Dr Belfrage and Dr Nilsson suggests that there is scope for deviation from international prescriptions on currency internationalisation. While the international consensus on monetary integration claims that vulnerability is endogenous to developing economies, for example through poor policy, this research demonstrates that sources of vulnerability derive largely from developing countries’ subordination in the US$-dominated global financial system.  Developing countries’ policy-makers should therefore avoid wholesale liberalization of their currencies as this renders them susceptible to destabilizing speculative investment. Moreover, this research shows that wholesale liberalization drives financial deregulation, stimulating unhealthy debt accumulation and asset overpricing when sustainable development requires a stable institutional framework which encourages long-term productive investments and trade relations.                                  


The investigators have brought the research outlined above to bear on the understanding of central bankers and other policy-makers in Brazil and Mercosur convincing them of the virtue of a regional and trade-oriented form of currency internationalisation capable of supporting sustainable development. Primary impact can be identified on the Brazilian Central Bank and Securities and Exchange Commission (CVM). 

This research provided the BCB with an argument for a different approach to currency internationalisation that has been overlooked by international organizations in the financial arena, with particular focus on regional financial integration and regional use of the Brazilian Real. This allowed for novel policy recommendations by Brazilian central bankers to aimed at aligning currency internationalisation and trade in the more controlled environment of the Mercosur; it guided the BCB’s advocacy of opening up the local currency payment system to Chile and Columbia; and it triggered an interest in requesting and taking part in further collaboration with the team to identify and better understand the particular problems of the current payment system.

Ongoing research 

The research team continues to collaborate with the BCB and with stakeholders in the City of London.

Dr Adriana Nilsson and Dr Claes Belfrage

Dr Adriana Nilsson and Dr Claes Belfrage

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