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The Impact of Yuan Internationalization on the Euro-Dollar Exchange Rate

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  • Agnès Bénassy-Quéré
  • Yeganeh Forouheshfar

Abstract

We study the implication of a multipolarization of the international monetary system on cross-currency volatility. More specifically, we analyze whether the internationalization of the yuan could modify the impact of asset supply and trade shocks on the euro-dollar exchange rate, within a three-country, three-currency portfolio model. Our static model shows that the internationalization of the yuan (defined as a rise in the yuan in international portfolios) would be either neutral or stabilizing for the euro-dollar rate, whatever the exchange-rate regime of China. Moving to a dynamic, stock-flow framework, we show that the internationalization of the yuan would make exchange-rate variations more efficient to stabilize net foreign asset positions after a trade shock.

Suggested Citation

  • Agnès Bénassy-Quéré & Yeganeh Forouheshfar, 2013. "The Impact of Yuan Internationalization on the Euro-Dollar Exchange Rate," Working Papers 2013-14, CEPII research center.
  • Handle: RePEc:cii:cepidt:2013-14
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    References listed on IDEAS

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    1. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2004. "The revived Bretton Woods system," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(4), pages 307-313.
    2. Eichengreen, Barry, 2012. "Exorbitant Privilege: The Rise and Fall of the Dollar," OUP Catalogue, Oxford University Press, number 9780199642472.
    3. Ignazio Angeloni & Agnès Bénassy-Quéré & Benjamin Carton & Christophe Destais & Zsolt Darvas & Jean Pisani-Ferry & André Sapir & Shahin Vallée, . "Global currencies for tomorrow: a European perspective," Blueprints, Bruegel, number 592, November.
    4. Jacques Mazier & Gnanonobodom Tiou‐Tagba Aliti, 2012. "World Imbalances And Macroeconomic Adjustments: A Three‐Country Stock‐Flow Consistent Model With Fixed Or Flexible Prices," Metroeconomica, Wiley Blackwell, vol. 63(2), pages 358-388, May.
    5. Dobson, Wendy & Masson, Paul R., 2009. "Will the renminbi become a world currency?," China Economic Review, Elsevier, vol. 20(1), pages 124-135, March.
    6. Eichengreen, Barry, 1987. "Hegemonic Stability Theories of the International Monetary System," CEPR Discussion Papers 193, C.E.P.R. Discussion Papers.
    7. N/A, 2011. "Reform of the International Monetary System," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 3(2), pages 185-193, May.
    8. Agnès Bénassy-Quéré & Jean Pisani-Ferry & Yu Yongding, 2011. "Reform of the International Monetary System: Some Concrete Steps," La Lettre du CEPII, CEPII research center, issue 309.
    9. Benjamin J. Cohen, 2009. "Dollar Dominance, Euro Aspirations: Recipe for Discord?," Journal of Common Market Studies, Wiley Blackwell, vol. 47, pages 741-766, September.
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    Cited by:

    1. Agnès Bénassy-Quéré, 2015. "The euro as an international currency," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01299083, HAL.

    More about this item

    Keywords

    China; yuan; exchange-rate regime; euro; dollar;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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