The Renminbi Bloc is Here: Asia Down, Rest of the World to Go?1)

Arvind Subramanian and Martin Kessler

Journal of Globalization and Development, 2013, vol. 4, issue 1, 49-94

Abstract: A country’s rise to economic dominance tends to be accompanied by its currency becoming a reference point, with other currencies tracking it implicitly or explicitly. For a sample comprising emerging market economies, we show that in the last 3 years, the renminbi (RMB) has increasingly become a reference currency which we define as one which exhibits a high degree of co-movement (CMC) with other currencies. In East Asia, there is already a RMB bloc, because the RMB has become the dominant reference currency, eclipsing the dollar, which is a historic development. In this region, 7 currencies out of 10 co-move more closely with the RMB than with the dollar, with the average value of the CMC relative to the RMB being about 60% greater than that for the dollar. We find that co-movements with a reference currency, especially for the RMB, are associated with trade integration. We draw some lessons for the prospects for the RMB bloc to move beyond Asia based on a comparison of the RMB’s situation today and that of the Japanese yen in the early 1990s. If trade were the sole driver, a more global RMB bloc could emerge by the mid-2030s but complementary reforms of the financial and external sector could considerably expedite the process.

Keywords: Exchange rates, China, Renminbi, currency internationalisation, reserve currency, JEL Codes: F31; F33 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (28)

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DOI: 10.1515/jgd-2013-0017

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