RMB Bloc in East Asia: Too Early to Talk About It?

Chang Sik Kim, Sunghyun Kim () and Yunjong Wang
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Yunjong Wang: School of International Studies The Catholic University of Korea 43 Jibong-ro, Bucheon-si Gyeonggi-do, Korea and Korea Institute for International Economic Policy Sejong National Research Complex 370 Sicheongdaerom Sejong-si, Korea yjwang00@hotmail.com Author email: yjwang00@hotmail.com

Asian Economic Papers, 2018, vol. 17, issue 3, 31-48

Abstract: This paper investigates whether the Chinese RMB has become more influential (than the U.S. dollar) in determining the exchange rates of East Asian currencies in recent years. We use a regression method with time-varying coefficients to trace changes in coefficients over time. The empirical results show that the RMB's effects on East Asian currencies were near zero before 2008, but since then have significantly increased and taken over the role of the U.S. dollar in some countries (Indonesia, Malaysia, and the Philippines). In Singapore and Thailand, the RMB is still a non-factor. South Korea shows an interesting pattern, in that the role of the RMB swings over time, with an increase in the past couple of years. We conjecture that the trade share with China has a positive influence on the role of the RMB. In conclusion, given the small absolute value of the regression coefficient on RMB, although the RMB has attained a more significant status in the currency market, it is too early to talk about the creation of an RMB bloc in East Asia.

Date: 2018
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