The Renminbi and Exchange Rate Regimes in East Asia

Masahiro Kawai () and Victor Pontines

Finance Working Papers from East Asian Bureau of Economic Research

Abstract: With the rise of the People’s Republic of China (PRC) as the world’s largest trading nation (measured by trade value) and second largest economic power (measured by GDP), its economic influence over the neighboring emerging economies in East Asia has also risen. The PRC introduced some exchange rate flexibility in July 2005, and in the wake of the global financial crisis has been pursuing a policy to internationalize its currency, the renminbi (RMB). Clearly the exchange rate policy of the PRC has significant implications for exchange rate regimes in emerging East Asia. This paper examines the behavior of the RMB exchange rate and the impact of RMB movements on those of other currencies in emerging East Asia during the period 2000–2014. We apply the Frankel–Wei regression model to identify changes in the RMB exchange rate regime over time and a modified version of the model, developed by the authors in their earlier paper, to estimate the RMB weight in an emerging East Asian economy’s currency basket. We find that the US dollar continues to be the dominant anchor currency in the region, while the RMB has taken on increasing importance in the currency baskets of many East Asian economies in recent years. The paper also explores how monetary and currency cooperation—led by the PRC and Japan—can promote intra-East Asian exchange rate stability under the pressure of rising financial market openness in the PRC.

Keywords: Remminbi; China; PRC; exchange rate regime; East Asia; exchange rate policy; the Frankel–Wei model; Japan; financial market openness (search for similar items in EconPapers)
JEL-codes: F15 F31 F36 F41 O24 (search for similar items in EconPapers)
Date: 2014-05
New Economics Papers: this item is included in nep-cba, nep-mon, nep-sea and nep-tra
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Citations: View citations in EconPapers (11)

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Related works:
Working Paper: The Renminbi and Exchange Rate Regimes in East Asia (2014)
Working Paper: The Renminbi and Exchange Rate Regimes in East Asia (2014)
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