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

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  • Subramanian Arvind

    ()

  • Kessler Martin

    (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 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.

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Bibliographic Info

Article provided by De Gruyter in its journal Journal of Globalization and Development.

Volume (Year): 4 (2013)
Issue (Month): 1 (August)
Pages: 49-94

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Handle: RePEc:bpj:globdv:v:4:y:2013:i:1:p:49-94:n:3

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Cited by:
  1. Volz, Ulrich, 2013. "RMB internationalisation and currency co-operation in East Asia," Working Papers 125, University of Leipzig, Faculty of Economics and Management Science.

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