The impact of RMB swap agreements on foreign exchange reserve demand

Linyue Li, Dongzhou Mei and Rou Li

Applied Economics, 2020, vol. 52, issue 59, 6453-6467

Abstract: This paper constructs panel data of 150 economies from 2001 to 2017 to study the impact of RMB (Renminbi) swap agreements on foreign exchange reserve demand. The empirical results show that the swap agreements can significantly reduce the foreign reserve demand of non-OECD economies that have relatively insufficient liquidity. From the perspective of specific country classification, economies neighbouring China have higher RMB demand, Latin American and African economies hold less reserve, and commodity exporters are stuck in liquidity-nervous situations, in which RMB swap agreements are able to improve liquidity so that their reserve demand decreases. Regarding the channels of influence, swap agreements impose different impacts on the reserve demand mainly through bilateral trade and more impacts on economies that import more from China. On the contrary, the RMB swap agreements will not affect the OECD economies’ foreign exchange reserve demand.

Date: 2020
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DOI: 10.1080/00036846.2020.1796916

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