Currency risk analysis of belt and road initiative countries

by Mengyang Li, Wencui Liu, Lei Wang

The UN’s Sustainable Development Goals (SDGs) highlight the role of debt sustainability in achieving sustainable development. China’s Belt and Road Initiative (BRI) is an international cooperation effort that is endorsed by over 150 countries and organizations. Given the alignment between BRI development goals and the SDGs, the issue of debt sustainability in BRI countries warrants attention. While existing studies focus on sovereign risk in debt sustainability, there is a lack of emphasis on currency risk, indicating a need for further investigation to mitigate risks and comprehensively evaluate debt stability. Using data from 142 countries, this study examines currency risk reduction in BRI countries by assessing currency competitiveness. We find that the US dollar (USD) is the most competitive currency among BRI countries, followed by the Euro (EUR), Chinese yuan (CNY), sterling pound (GBP), and Japanese yen (JPY). The USD maintains its competitive edge over time, making it the preferred choice, with the EUR as a less optimal option and the CNY showing potential. Geographically, the EUR’s close ties with BRI countries lend it prominence, followed by the USD, with the CNY gaining traction. GBP and JPY are considered conservative choices. Recommendations for currency selection vary based on countries’ competitiveness, bilateral relationships, and development status.