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One currency, two markets: the renminbi’s growing influence in Asia-Pacific

Author

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  • Chang Shu
  • Dong He
  • Xiaoqiang Cheng

Abstract

This study presents evidence of the renminbi’s growing influence in the Asia-Pacific region. The CNH market – the offshore renminbi foreign exchange market in Hong Kong SAR – is found to exert an effect on Asian currencies that is distinct from that of the onshore (CNY) market. Changes in the RMB/USD rates in both markets have a statistically and economically significant impact on changes in Asian currency rates against the US dollar, even after controlling for other major currency moves and the transmission of China’s monetary policy to the region. The continuing growth of the offshore renminbi market suggests that the influence of the CNH market is rising, but how long the independent impact will last will likely depend on China’s progress in liberalising its capital account. The findings also suggest that China’s regional influence is increasingly transmitted through financial channels.

Suggested Citation

  • Chang Shu & Dong He & Xiaoqiang Cheng, 2014. "One currency, two markets: the renminbi’s growing influence in Asia-Pacific," BIS Working Papers 446, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:446
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    Cited by:

    1. MASUJIMA Yuki, 2017. "Safe Haven Currency and Market Uncertainty: Yen, renminbi, dollar, and alternatives," Discussion papers 17048, Research Institute of Economy, Trade and Industry (RIETI).
    2. repec:eee:jimfin:v:79:y:2017:i:c:p:189-202 is not listed on IDEAS
    3. Daniela Marconi, 2016. "Currency co-movements in Asia-Pacific: the regional role of the renminbi," Questioni di Economia e Finanza (Occasional Papers) 341, Bank of Italy, Economic Research and International Relations Area.
    4. Robert N McCauley & Chang Shu, 2018. "Recent RMB policy and currency co-movements," BIS Working Papers 727, Bank for International Settlements.
    5. Rasmus Fatum & Yohei Yamamoto & Guozhong Zhu, "undated". "Is the Renminbi a Safe Haven?," Working Papers e109, Tokyo Center for Economic Research.
    6. Batten, Jonathan A. & Szilagyi, Peter G., 2016. "The internationalisation of the RMB: New starts, jumps and tipping points," Emerging Markets Review, Elsevier, vol. 28(C), pages 221-238.
    7. Hai-Chuan Xu & Wei-Xing Zhou & Didier Sornette, 2018. "Time-dependent lead-lag relationship between the onshore and offshore Renminbi exchange rates," Papers 1803.09432, arXiv.org.
    8. Robert N McCauley & Tracy Chan, 2014. "Currency movements drive reserve composition," BIS Quarterly Review, Bank for International Settlements, December.
    9. Robert Neil McCauley & Chang Shu, 2016. "Non-deliverable forwards: impact of currency internationalisation and derivatives reform," BIS Quarterly Review, Bank for International Settlements, December.
    10. Funke, Michael & Shu, Chang & Cheng, Xiaoqiang & Eraslan, Sercan, 2015. "Assessing the CNH–CNY pricing differential: Role of fundamentals, contagion and policy," Journal of International Money and Finance, Elsevier, vol. 59(C), pages 245-262.
    11. Ito, Hiroyuki & McCauley, Robert N. & Chan, Tracy, 2015. "Currency composition of reserves, trade invoicing and currency movements," Emerging Markets Review, Elsevier, vol. 25(C), pages 16-29.
    12. Eraslan, Sercan, 2017. "Asymmetric arbitrage trading on offshore and onshore renminbi markets," Discussion Papers 13/2017, Deutsche Bundesbank.
    13. Carlos P. Barros & Luis A. Gil-Alana & Zhongfei Chen, 2016. "Exchange rate persistence of the Chinese yuan against the US dollar in the NDF market," Empirical Economics, Springer, vol. 51(4), pages 1399-1414, December.
    14. Yin-Wong Cheung & Cho-Hoi Hui & Andrew Tsang, 2017. "The RMB Central Parity Formation Mechanism after August 2015: A Statistical Analysis," Working Papers 062017, Hong Kong Institute for Monetary Research.
    15. Shekhar Hari Kumar & Ila Patnaik, 2018. "Internationalisation of the Rupee," Working Papers id:12551, eSocialSciences.
    16. Keddad, Benjamin, 2016. "How do the Renminbi and other East Asian currencies co-move?," MPRA Paper 83782, University Library of Munich, Germany.
    17. Kunze, Frederik & Basse, Tobias & Wegener, Christoph & Spiwoks, Markus, 2018. "The emergence of the RMB: A "New Normal" for China's exchange rate system?," Center for European, Governance and Economic Development Research Discussion Papers 348, University of Goettingen, Department of Economics.
    18. Fatum, Rasmus & Yamamoto, Yohei & Zhu, Guozhong, 2017. "Is the Renminbi a safe haven?," Journal of International Money and Finance, Elsevier, vol. 79(C), pages 189-202.
    19. Chang Shu & Dong He & Honglin Wang & Jinyue Dong, 2015. "The influence of Chinese and US financial markets on Asia-Pacific," BIS Papers chapters,in: Bank for International Settlements (ed.), Cross-border Financial Linkages: Challenges for Monetary Policy and Financial Stability, volume 82, pages 7-24 Bank for International Settlements.
    20. Kumar, Shekhar Hari & Patnaik, Ila, 2018. "Internationalisation of the Rupee," Working Papers 18/222, National Institute of Public Finance and Policy.
    21. repec:eee:intfin:v:49:y:2017:i:c:p:173-183 is not listed on IDEAS
    22. Chang Shu & Dong He & Jinyue Dong & Honglin Wang, 2016. "Regional pull vs global push factors: China and US influence on Asia-Pacific financial markets," BIS Working Papers 579, Bank for International Settlements.

    More about this item

    Keywords

    renminbi internationalisation; renminbi impact; offshore markets;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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