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

Arvind Subramanian and Martin Kessler

No WP12-19, Working Paper Series from Peterson Institute for International Economics

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 three years, the renminbi (RMB) has increasingly become a reference currency, which we define as one that exhibits a high degree of co-movement with other currencies. In East Asia, there is already a RMB bloc, because the RMB has become the dominant reference currency, eclipsing the US 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 co-movement coefficient relative to the RMB being about 60 percent 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 sectors could considerably expedite the process.

Keywords: Exchange rates; China; renminbi; currency internationalization; reserve currency (search for similar items in EconPapers)
JEL-codes: F31 F33 (search for similar items in EconPapers)
Date: 2012-10, Revised 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (36)

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Journal Article: The Renminbi Bloc is Here: Asia Down, Rest of the World to Go?1) (2013)
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