Determinants of the renminbi anchor effect: From the perspective of the belt and road initiative

Wanlin Cai

International Journal of Finance & Economics, 2022, vol. 27, issue 3, 3421-3433

Abstract: The scope of this study is to empirically test the renminbi's (RMB) anchor effect. Since the proposal of the Belt and Road (B&R) Initiative, the RMB is shown to have made more remarkable progress as an anchor currency in B&R countries compared to non‐B&R countries. The ordered logit model is then used to examine the determinants of the RMB anchor effect. The results show that the probability of the RMB being an anchor currency increases with the higher the trade integration, the higher the investment dependence, the better the RMB infrastructure and the closer the policy cooperation. The results also provide evidence on how to further strengthen the RMB anchor effect and promote the RMB internationalization in the long run. On the basis of strengthening its policy cooperation with B&R countries, China should use its sustainable growth of trade and investment to provide the impetus for RMB internationalization. Furthermore, it should optimize the layout of the RMB offshore market, increase the openness of the financial market, and strengthen currency cooperation among central banks to provide guarantees for RMB internationalization.

Date: 2022
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