The influence of the renminbi and its macroeconomic determinants: A new Chinese monetary order in Asia?

We propose a regime-switching setting to assess the role of the Chinese renminbi in Asia. Our contribution relies on nonlinear coefficient constraints to detect periods during which currencies were floated and synchronised against the renminbi. We link the corresponding estimated regimes to macroeconomic determinants that might explain the decision to more closely track the renminbi. We pay particular attention to the degree of renminbi globalisation as well as trade relationships, business cycle synchronisation, Chinese economic policy uncertainty, exchange market pressure on renminbi and export similarity with China. We reveal that the renminbi weight is higher than what is generally suggested in the literature but constantly adjusted within currency baskets. Furthermore, when Asian countries loosen their pegs against the US dollar, the correlation of their currencies with the renminbi tends to increase. Finally, we report that efforts to promote international uses of the renminbi as well as trade dependence on and export similarity to China are key factors in synchronising Asian currencies to the renminbi. China’s exchange rate and monetary policy uncertainty as well as depreciation pressures on the renminbi also play a nonnegligible role.