Is There Really a Renminbi Bloc in Asia?

Masahiro Kawai () and Victor Pontines

No 467, ADBI Working Papers from Asian Development Bank Institute

Abstract: This paper examines whether the renminbi (RMB) has supplanted the US dollar as the major anchor currency in the currency baskets of East Asian economies. It systematically demonstrates that existing techniques to address the problem of severe multicollinearity in estimations of the Frankel¬–Wei regression model, with the movements in both the RMB and the US dollar included on the right-hand side of the equation, remain limited in providing stable and robust results. The paper proposes a simple modification of the Frankel–Wei regression model to estimate the RMB weight in an economy’s currency basket. Using this new approach, findings show there is not yet an RMB bloc in East Asia, contrary to claims made by some recent studies, with the US dollar continuing to be the dominant anchor currency in the region. The RMB has taken on some importance in the currency baskets of many East Asian economies in recent years and this appears to have occurred at the expense of the yen. In short, despite the rising importance of the RMB, it has not eclipsed the US dollar as the dominant anchor currency in East Asia.

Keywords: RMB; renminbi bloc; Frankel–Wei regression model; anchor currency; East Asia; currency baskets (search for similar items in EconPapers)
JEL-codes: F15 F31 F36 F41 O24 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2014-03-07
New Economics Papers: this item is included in nep-mon, nep-opm and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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