International use of the renminbi for invoice currency and exchange risk management: Evidence from the Japanese firm-level data

The use of the Chinese renminbi (RMB) is said to have been increasing in recent years for trade invoicing, due to active promotion policies implemented by the Chinese government. However, only patchy information has been presented in the literature on the use of RMB in Chinese trade. Using the information obtained from two-round, large-scale questionnaire surveys, this paper presents new evidence on the use of RMB and exchange risk management by Japanese subsidiaries operating in China and other Asian countries. We find that Japanese subsidiaries in China mainly use the U.S. dollar, and to a lesser extent, the yen in trade with other countries. However, they increase the use of RMB in intra-firm trade with Japan. The result of Logit estimation indicates that RMB transactions will grow further if overseas subsidiaries have more discretion in exchange rate risk management. Removing capital controls on onshore RMB (CNY) market is another necessary condition to promote RMB internationalization.