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The Renminbi and Exchange Rate Regimes in East Asia

Author

Listed:
  • Kawai, Masahiro

    (Asian Development Bank Institute)

  • Pontines, Victor

    (Asian Development Bank Institute)

Abstract

With the rise of the People's Republic of China (PRC) as the world's largest trading nation (measured by trade value) and second largest economic power (measured by GDP), its economic influence over the neighboring emerging economies in East Asia has also risen. The PRC introduced some exchange rate flexibility in July 2005, and in the wake of the global financial crisis has been pursuing a policy to internationalize its currency, the renminbi (RMB). Clearly the exchange rate policy of the PRC has significant implications for exchange rate regimes in emerging East Asia. This paper examines the behavior of the RMB exchange rate and the impact of RMB movements on those of other currencies in emerging East Asia during the period 2000–2014. We apply the Frankel–Wei regression model to identify changes in the RMB exchange rate regime over time and a modified version of the model, developed by the authors in their earlier paper, to estimate the RMB weight in an emerging East Asian economy's currency basket. We find that the US dollar continues to be the dominant anchor currency in the region, while the RMB has taken on increasing importance in the currency baskets of many East Asian economies in recent years. The paper also explores how monetary and currency cooperation—led by the PRC and Japan—can promote intra-East Asian exchange rate stability under the pressure of rising financial market openness in the PRC.

Suggested Citation

  • Kawai, Masahiro & Pontines, Victor, 2014. "The Renminbi and Exchange Rate Regimes in East Asia," ADBI Working Papers 484, Asian Development Bank Institute.
  • Handle: RePEc:ris:adbiwp:0484
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    References listed on IDEAS

    as
    1. Hwee Kwan Chow, 2011. "Towards an Expanded Role for Asian Currencies : Issues and Prospects," Finance Working Papers 23251, East Asian Bureau of Economic Research.
    2. Kawai, Masahiro & Pontines, Victor, 2014. "Is There Really a Renminbi Bloc in Asia?," ADBI Working Papers 467, Asian Development Bank Institute.
    3. Ronald McKinnon & Gunther Schnabl, 2004. "The East Asian Dollar Standard, Fear of Floating, and Original Sin," Review of Development Economics, Wiley Blackwell, vol. 8(3), pages 331-360, August.
    4. Marcel Fratzscher & Arnaud Mehl, 2014. "China's Dominance Hypothesis and the Emergence of a Tri‐polar Global Currency System," Economic Journal, Royal Economic Society, vol. 124(581), pages 1343-1370, December.
    5. Ito, Hiro & Kawai, Masahiro, 2012. "New Measures of the Trilemma Hypothesis: Implications for Asia," ADBI Working Papers 381, Asian Development Bank Institute.
    6. Pontines, Victor, 2015. "How useful is an Asian Currency Unit (ACU) index for surveillance in East Asia?," Economic Systems, Elsevier, vol. 39(2), pages 269-287.
    7. Kawai, Masahiro & Akiyama, Shigeru, 1998. "The Role of Nominal Anchor Currencies in Exchange Rate Arrangements," Journal of the Japanese and International Economies, Elsevier, vol. 12(4), pages 334-387, December.
    8. Balasubramaniam, Vimal & Patnaik, Ila & Shah, Ajay, 2011. "Who cares about the Chinese Yuan?," Working Papers 11/89, National Institute of Public Finance and Policy.
    9. Masahiro Kawai & Peter J. Morgan & Shinji Takagi (ed.), 2012. "Monetary and Currency Policy Management in Asia," Books, Edward Elgar Publishing, number 14414.
    10. Arvind Subramanian, 2011. "Eclipse: Living in the Shadow of China's Economic Dominance," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 6062.
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    Cited by:

    1. repec:eee:riibaf:v:44:y:2018:i:c:p:227-238 is not listed on IDEAS
    2. Barry Eichengreen & Domenico Lombardi, 2017. "RMBI or RMBR? Is the Renminbi Destined to Become a Global or Regional Currency?," Asian Economic Papers, MIT Press, vol. 16(1), pages 35-59, Winter/Sp.
    3. Caporale, Guglielmo Maria & Gil-Alana, Luis A. & You, Kefei, 2018. "Exchange rate linkages between the ASEAN currencies, the US dollar and the Chinese RMB," Research in International Business and Finance, Elsevier, vol. 44(C), pages 227-238.
    4. Vladimir Klyuev & To-Nhu Dao, 2016. "Evolution of Exchange Rate Behavior in the ASEAN-5 Countries," IMF Working Papers 16/165, International Monetary Fund.

    More about this item

    Keywords

    renminbi internationalization; prc; emerging economies; east asia; frankel-wei model;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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