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Renminbi Rising? Exporters' Response to China's Currency Internationalization

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  • Sonali Chowdhry

Abstract

This paper investigates the heterogeneous responses of exporters to policy reforms undertaken by the People’s Bank of China to internationalize the Renminbi (RMB). Using detailed customs data from France for the initial years of these reforms (2011-2017), it documents several novel stylized facts on RMB adoption, highlighting both the growth and extreme skewness in RMB’s uptake across firms and varieties. It further examines various mechanisms underpinning self-selection into RMB and proposes a novel channel that strongly predicts RMB adoption. This channel exploits information on firms’ invoicing currency strategies in existing markets and is observed to be a valid instrument for RMB adoption. Leveraging this new instrument, the paper shows that invoicing in RMB significantly boosted exports for varieties sold to China. Overall, the findings suggest that early RMB adoption, although limited across firms, provided an important competitive edge when exporting to China.

Suggested Citation

  • Sonali Chowdhry, 2024. "Renminbi Rising? Exporters' Response to China's Currency Internationalization," Discussion Papers of DIW Berlin 2085, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp2085
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    References listed on IDEAS

    as
    1. Mary Amiti & Oleg Itskhoki & Jozef Konings, 2022. "Dominant Currencies: How Firms Choose Currency Invoicing and Why it Matters," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(3), pages 1435-1493.
    2. Crowley, M. A. & Han, L. & Son, M., 2020. "Dominant Currency Dynamics: Evidence on Dollar-invoicing from UK Exporters," Cambridge Working Papers in Economics 20113, Faculty of Economics, University of Cambridge.
    3. Takatoshi Ito & Satoshi Koibuchi & Kiyotaka Sato & Junko Shimizu, 2010. "Why has the yen failed to become a dominant invoicing currency in Asia? A firm-level analysis of Japanese Exporters' invoicing behavior," NBER Working Papers 16231, National Bureau of Economic Research, Inc.
    4. Antrà s, Pol & Chor, Davin, 2017. "On the Measurement of Upstreamness and Downstreamness in Global Value Chains," CEPR Discussion Papers 12549, C.E.P.R. Discussion Papers.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Firm heterogeneity; invoicing currency; trade transactions; China;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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