IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/22755.html
   My bibliography  Save this paper

A New Financial Order in Asia: Will a RMB bloc emerge?

Author

Listed:
  • Takatoshi Ito

Abstract

The objective of this paper is three-fold. First, the monetary and exchange rate regimes of the Asian countries are described and analyzed. The degrees of flexibility in exchange rates and capital controls vary across countries. Some countries have adopted a flexible inflation targeting framework, while others have pursued exchange rate targeting. The paper presents a new result of a tradeoff between price stability and exchange rate stability in the hyperbolic relationship of Asian countries. Second, a framework that analyzes and quantifies the degree of currency internationalization is proposed and applied to the RMB. In every indicator, the RMB’s weight in private-sector international finance has grown in the last several years, both in the private and public sectors. In the settlement role of currency, the RMB is ranked 8th in the BIS survey and 7th in SWIFT usage. This paper exploits data of a recent period when the RMB became de-pegged from the USD and show some of the emerging Asian currencies co-moving with the RMB, more so than the USD. In the official sector, RMB is also increasing its weight. The Chinese central bank has extended the currency-swap agreements with 30-some countries, so that the RMB can be used for trade finance and liquidity assistance. The RMB is adopted as a composition currency of the Special Drawing Rights (SDR), effective in October 2016, with 10.92 percent, ranking number 3, surpassing the JPY and GBP. Finally, potential impending changes in the Asian monetary and exchange rate regimes in Asia are discussed. Projecting the growth of the Chinese economy into the future, the weight of the RMB in the financial markets will increase globally as well as in Asia.

Suggested Citation

  • Takatoshi Ito, 2016. "A New Financial Order in Asia: Will a RMB bloc emerge?," NBER Working Papers 22755, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:22755
    Note: IFM
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w22755.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Aizenman, Joshua & Cheung, Yin-Wong & Ito, Hiro, 2015. "International reserves before and after the global crisis: Is there no end to hoarding?," Journal of International Money and Finance, Elsevier, vol. 52(C), pages 102-126.
    2. Aizenman, Joshua & Pasricha, Gurnain Kaur, 2013. "Why do emerging markets liberalize capital outflow controls? Fiscal versus net capital flow concerns," Journal of International Money and Finance, Elsevier, vol. 39(C), pages 28-64.
    3. Menzie Chinn & Jeffrey A. Frankel, 2007. "Will the Euro Eventually Surpass the Dollar as Leading International Reserve Currency?," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 283-338, National Bureau of Economic Research, Inc.
    4. Agnès Bénassy-Quéré & Damien Capelle, 2014. "On the inclusion of the Chinese renminbi in the SDR basket," International Economics, CEPII research center, issue 139, pages 133-151.
    5. Chalongphob SUSSANGKARN, 2011. "Chiang Mai Initiative Multilateralization: Origin, Development, and Outlook," Asian Economic Policy Review, Japan Center for Economic Research, vol. 6(2), pages 203-220, December.
    6. Aizenman, Joshua & Sun, Yi, 2012. "The financial crisis and sizable international reserves depletion: From ‘fear of floating’ to the ‘fear of losing international reserves’?," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 250-269.
    7. Andrés Fernández & Michael W Klein & Alessandro Rebucci & Martin Schindler & Martín Uribe, 2016. "Capital Control Measures: A New Dataset," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(3), pages 548-574, August.
    8. Joshua Aizenman & Hiro Ito, 2014. "The More Divergent, the Better? Lessons on Trilemma Policies and Crises for Asia," Asian Development Review, MIT Press, vol. 31(2), pages 21-54, September.
    9. Joshua Aizenman, 2010. "Hoarding international reserves versus a Pigovian tax-cum-subsidy scheme: Reflections on the deleveraging crisis of 2008-9, and a cost benefit analysis," Proceedings, Federal Reserve Bank of San Francisco, issue Oct.
    10. Michael W. Klein, 2012. "Capital Controls: Gates versus Walls," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 45(2 (Fall)), pages 317-367.
    11. Linda S. Goldberg & Craig Kennedy & Jason Miu, 2011. "Central bank dollar swap lines and overseas dollar funding costs," Economic Policy Review, Federal Reserve Bank of New York, vol. 17(May), pages 3-20.
    12. Hans Genberg, 2011. "Currency internationalisation: analytical and policy issues," BIS Papers chapters, in: Bank for International Settlements (ed.), Currency internationalisation: lessons from the global financial crisis and prospects for the future in Asia and the Pacific, volume 61, pages 221-230, Bank for International Settlements.
    13. Aizenman, Joshua & Jinjarak, Yothin & Park, Donghyun, 2011. "International reserves and swap lines: Substitutes or complements?," International Review of Economics & Finance, Elsevier, vol. 20(1), pages 5-18, January.
    14. Grassman, Sven, 1976. "Currency distribution and forward cover in foreign trade : Sweden revisited, 1973," Journal of International Economics, Elsevier, vol. 6(2), pages 215-221, May.
    15. Aizenman, Joshua & Pasricha, Gurnain Kaur, 2010. "Selective swap arrangements and the global financial crisis: Analysis and interpretation," International Review of Economics & Finance, Elsevier, vol. 19(3), pages 353-365, June.
    16. Aizenman, Joshua & Hutchison, Michael M., 2012. "Exchange market pressure and absorption by international reserves: Emerging markets and fear of reserve loss during the 2008–2009 crisis," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 1076-1091.
    17. Grassman, Sven, 1973. "A fundamental symmetry in international payment patterns," Journal of International Economics, Elsevier, vol. 3(2), pages 105-116, May.
    18. Jeffrey Frankel, 2005. "On the renminbi," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 6(03), pages 16-21, October.
    19. Dominguez, Kathryn M.E. & Hashimoto, Yuko & Ito, Takatoshi, 2012. "International reserves and the global financial crisis," Journal of International Economics, Elsevier, vol. 88(2), pages 388-406.
    20. Takatoshi ITO, 2010. "China as Number One: How about the Renminbi?," Asian Economic Policy Review, Japan Center for Economic Research, vol. 5(2), pages 249-276, December.
    21. Joshua Aizenman, 2015. "Internationalization of the RMB, Capital Market Openness and Financial Reforms in China," Pacific Economic Review, Wiley Blackwell, vol. 20(3), pages 444-460, August.
    22. Michael W. Klein, 2012. "Capital Controls: Gates versus Walls," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(2 (Fall)), pages 317-367.
    23. Aizenman, Joshua, 2011. "Hoarding international reserves versus a Pigovian tax-cum-subsidy scheme: Reflections on the deleveraging crisis of 2008-2009, and a cost benefit analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1502-1513, September.
    24. Bank for International Settlements, 2011. "Currency internationalisation: lessons from the global financial crisis and prospects for the future in Asia and the Pacific," BIS Papers, Bank for International Settlements, number 61.
    25. Andrés Fernández & Michael W Klein & Alessandro Rebucci & Martin Schindler & Martín Uribe, 2016. "Capital Control Measures: A New Dataset," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(3), pages 548-574, August.
    26. McKinnon, Ronald I., 1979. "Money in International Exchange: The Convertible Currency System," OUP Catalogue, Oxford University Press, number 9780195024098, Decembrie.
    27. Takatoshi Ito, 2012. "Can Asia Overcome the IMF Stigma?," American Economic Review, American Economic Association, vol. 102(3), pages 198-202, May.
    28. repec:zbw:bofitp:2015_004 is not listed on IDEAS
    29. Kawai, Masahiro & Pontines, Victor, 2016. "Is there really a renminbi bloc in Asia?: A modified Frankel–Wei approach," Journal of International Money and Finance, Elsevier, vol. 62(C), pages 72-97.
    30. Takatoshi Ito, 2006. "Robust Monetary Framework for China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 14(5), pages 32-47, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. D. Essers & E. Vincent, 2017. "The global financial safety net :In need of repair ?," Economic Review, National Bank of Belgium, issue ii, pages 87-112, september.
    2. Miguel Acosta-Henao & Laura Alfaro & Andrés Fernández, 2020. "Sticky Capital Controls," Working Papers Central Bank of Chile 877, Central Bank of Chile.
    3. Frankel, Jeffrey, 2012. "Internationalization of the RMB and Historical Precedents," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 27, pages 329-365.
    4. Jon Frost & Hiro Ito & René van Stralen, 2020. "The effectiveness of macroprudential policies and capital controls against volatile capital inflows," BIS Working Papers 867, Bank for International Settlements.
    5. Scheubel, Beatrice & Stracca, Livio, 2019. "What do we know about the global financial safety net? A new comprehensive data set," Journal of International Money and Finance, Elsevier, vol. 99(C).
    6. Stracca, Livio & Scheubel, Beatrice, 2016. "What do we know about the global financial safety net? Rationale, data and possible evolution," Occasional Paper Series 177, European Central Bank.
    7. Forbes, Kristin & Fratzscher, Marcel & Kostka, Thomas & Straub, Roland, 2016. "Bubble thy neighbour: Portfolio effects and externalities from capital controls," Journal of International Economics, Elsevier, vol. 99(C), pages 85-104.
    8. Aizenman, Joshua & Sun, Yi, 2012. "The financial crisis and sizable international reserves depletion: From ‘fear of floating’ to the ‘fear of losing international reserves’?," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 250-269.
    9. Cheng, Gong, 2015. "The Global Financial Safety Net through the Prism of G20 Summits," MPRA Paper 68070, University Library of Munich, Germany, revised Nov 2015.
    10. Marcel Fratzscher & Tobias Heidland & Lukas Menkhoff & Lucio Sarno & Maik Schmeling, 2023. "Foreign Exchange Intervention: A New Database," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 71(4), pages 852-884, December.
    11. Kuzman, Tanja & Lazarevic, Jelisaveta & Nedeljkovic, Milan, 2022. "Capital flows liberalisation and macroprudential policies: The effects on credit cycles in emerging economies," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 602-619.
    12. Joshua Aizenman, 2015. "Internationalization of the RMB, Capital Market Openness and Financial Reforms in China," Pacific Economic Review, Wiley Blackwell, vol. 20(3), pages 444-460, August.
    13. Pasricha, Gurnain Kaur & Falagiarda, Matteo & Bijsterbosch, Martin & Aizenman, Joshua, 2018. "Domestic and multilateral effects of capital controls in emerging markets," Journal of International Economics, Elsevier, vol. 115(C), pages 48-58.
    14. Aizenman, Joshua & Binici, Mahir, 2016. "Exchange market pressure in OECD and emerging economies: Domestic vs. external factors and capital flows in the old and new normal," Journal of International Money and Finance, Elsevier, vol. 66(C), pages 65-87.
    15. Shang-Jin Wei, 2018. "Managing Financial Globalization: Insights from the Recent Literature," Working Papers id:12586, eSocialSciences.
    16. Binici, Mahir & Das, Mitali, 2021. "Recalibration of capital controls: Evidence from the IMF taxonomy," Journal of International Money and Finance, Elsevier, vol. 110(C).
    17. Ligonniere, Samuel, 2018. "Trilemma, dilemma and global players," Journal of International Money and Finance, Elsevier, vol. 85(C), pages 20-39.
    18. Bussière, Matthieu & Cheng, Gong & Chinn, Menzie D. & Lisack, Noëmie, 2015. "For a few dollars more: Reserves and growth in times of crises," Journal of International Money and Finance, Elsevier, vol. 52(C), pages 127-145.
    19. Wang, Jian & Wu, Jason, 2021. "Is capital flow management effective? Evidence based on U.S. monetary policy shocks," Journal of International Money and Finance, Elsevier, vol. 118(C).
    20. Bekaert, Geert & Mehl, Arnaud, 2019. "On the global financial market integration “swoosh” and the trilemma," Journal of International Money and Finance, Elsevier, vol. 94(C), pages 227-245.

    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:22755. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.