Browsing by Subject "RMB"

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  • Cheung, Yin-Wong (2020)
    BOFIT Policy Brief 13/2020
    Published in Economic and Political Studies online
    This article recounts China’s renminbi (RMB) internationalization experiences since the 2009 RMBcross-border trade settlement initiative. In the first few years, the RMB made inroads into global financial markets and had a few remarkable accomplishments, including the Special Drawing Right currency status. Since the 2015 market turmoil, RMB internationalization has levelled off – possibly due to changes in both domestic and geopolitical conditions. The RMB is currently under-represented in the global market compared with China’s economic importance. China’s deliberate and schematic policies will elevate the RMB’s global stature in a gradual manner but there will not be a leapfrogging in the near term.
  • Cheung, Yin-Wong; Chinn, Menzie D.; Qian, XingWang (2012)
    BOFIT Discussion Papers 14/2012
    Published in Journal of International Money and Finance, Volume 31, Issue 8, 2012, Pages 2127-2146
    We find that Chinese trade flows respond to economic activity and relative prices -- as represented by a trade weighted exchange rate -- but the relationships are not always precisely or robustly estimated. Chinese exports are generally well-behaved, rising with foreign GDP and decreasing as the Chinese renminbi (RMB) appreciates. However, the estimated income elasticity is sensitive to the treatment of time trends. Estimates of aggregate imports are more problematic. In many cases, Chinese aggregate imports actually rise in response to a RMB depreciation and decline with Chinese GDP. This is true even after accounting for the fact a substantial share of imports are subsequently incorporated into Chinese exports. We find that some of these counter-intuitive results are mitigated when we disaggregate the trade flows by customs type, commodity type, and the type of firm undertaking the transactions. However, for imports, we only obtain more reasonable estimates of elasticities when we allow for different import intensities for different components of aggregate demand (specifically, consumption versus investment), or when we include a relative productivity variable. Keywords: China, imports, exports, real exchange rate JEL: F14, F41
  • Song, Ke; Xia, Le (2019)
    BOFIT Discussion Papers 19/2019
    This research empirically examines the impact of China’s Renminbi (RMB) bilateral swap agree-ments (BSAs) on the usage of the currency in cross-border trade transactions. By using a unique dataset from SWIFT including cross-border settlement messages of 91 countries/regions between October 2010 and November 2015, we confirm that the signing of a RMB BSA helps to increase the number, the value and the proportion of RMB settlement in cross-border trade. Our results are robust with respect to the choice of different models, including multi-level mixed model, two-stage regression model, and difference-in-difference model. In addition to justifying the effectiveness of China’s BSA-signing strategy to promote the RMB usage in trade settlement, our results clarify that the signing of those RMB BSAs is not purely for China’s political ends as some scholars claim.
  • Cheung, Yin-Wong; Herrala, Risto (2013)
    BOFIT Discussion Papers 22/2013
    Published in Pacific Economic Review, 19: 1 (2014), pp. 112–134
    We study the renminbi (RMB) covered interest differential - an indicator of the effectiveness of capital controls. It is found that the differential is not shrinking over time and, in fact, appears larger after the global financial crisis than before. That is, capital controls in China are still substantial and effective. In addition to exchange rate changes and volatilities, the RMB covered interest differential is affected by credit market tightness indicators. The marginal explanatory power of these macroeconomic factors, however, is small relative to the autoregressive component and the dummy variables that capture changes in China's policy. Keywords: NDF implied RMB interest rate, capital controls, asymmetric response, macro determinants, credit market tightness JEL: E44, F31, F32.
  • Garcia-Herrero, Alicia; Xia, Le (2013)
    BOFIT Discussion Papers 12/2013
    Published in Asia-Pacific Journal of Accounting & Economics, Volume 22, Issue 4, 2015 p. 368-383 as RMB Bilateral Swap Agreements: how China chooses its partners?
    This paper analyzes empirically what determines the choice of countries signing an RMB-denominated Bilateral Swap Agreement (BSA) with China. The gravity motif is predominant (both in terms of country size and distance from China) but so is the trade motif, in terms of both exports to China and the existence of an FTA with China. Institutional soundness also matters since countries with better government and less corruption are more likely to sign an RMB-denominated BSA. This contravenes the view that China has used RMB BSAs as a soft power tool in more corrupted countries. However, the fact that China has a preference for countries with a default history and a closed capital account calls for caution. Keywords: RMB internationalization, bilateral swap agreements. JEL: F33, F36, F42
  • Wang, Yi David (2012)
    BOFIT Discussion Papers 28/2012
    Published in Journal of Banking and Finance, Volume 50, January 01, 2015, Pages 616-631.
    In contrast to the well established markets such as the dollar-euro market, recent CIP deviations observed in the onshore dollar-RMB forward market were primarily caused by con-version restrictions in the spot market rather than by changes in credit risk and/or liquidity constraint. This paper proposes a theoretical framework by which the Chinese authorities impose conversion restrictions in the spot market in an attempt to achieve capital flow balance, but face the tradeoff between achieving such balance and disturbing current account transactions. Consequently, the level of conversion restriction should increase with the amount of capital account transactions and decrease with the amount of current account transactions. Such conversion restriction in turn places a binding constraint on forward traders' ability to cover their forward positions, resulting in the observed CIP deviation. More particularly, the model predicts that the onshore forward rate will equal a weighted average of the CIP-implied forward rate and the market's expectation of the future spot rate, were the weighting is determined by the level of conversion restriction. As a secondary result, the model also implies that offshore non-deliverable forwards reflect the market's expectation of the future spot rate. Our empirical results are consistent with these predictions. Keywords: forward foreign exchange, China, convertibility JEL: F30, F31, F33.
  • Fang, Ying; Huang, Shicheng; Niu, Linlin (2012)
    BOFIT Discussion Papers 2/2012
    We employ Bayesian method to estimate a time-varying coefficient version of the de facto currency basket model of Frankel and Wei (2007) for the RMB of China, using daily data from February 2005 to July 2011. We estimate jointly the implicit time-varying weights of all 11 currencies in the reference basket announced by the Chinese government. We find the dollar weight has been reduced and sometimes significantly smaller than one, but there is no evidence of systematic operation of a currency basket with discernable pattern of significant weights on other currencies. During specific periods, the reduced dollar weight has not been switched to other major international currencies, but to some East Asian currencies, which is hard to explain by trade importance to or trade competition with China. We examine currency baskets of these East Asian Economies, including major international currencies and the RMB in their baskets. We find an evident tendency of Malaysia and Singapore to increase the weights of RMB in their own currency baskets, and a steadily and significantly positive weight of RMB in the basket of Thailand. These evidences suggest that, the positive weights of some East Asian currencies in RMB currency basket during specific periods largely reflect the fact that these East Asia economies have been systematically placing greater weights on RMB under the new regime of RMB exchange rate. Keywords: RMB currency basket, time-varying regressions, East Asia, China, US JEL Classification: F31, F41, C11
  • He, Xinhua; Qin, Duo; Liu, Yimeng (2011)
    BOFIT Discussion Papers 22/2011
    Published in Journal of Chinese Economic and Business Studies, Volume 10, Issue 3, August 2012, Pages 247-266
    The familiar claim of Chinese currency manipulation is generally asserted without reference to empirical evidence. To investigate the legitimacy of the claim, we ask if the undervalued misalignment found in the real effective exchange rate (REER) of the Chinese renminbi (RMB) over the past decade has any recent historical precedents. Four cases are examined: the Japanese yen, the Deutsche mark, the Singapore dollar and the Taiwan dollar. Panel-based misalignment estimates of the REER of the four currencies are obtained using quarterly data from the late 1970s to the early 2000s. Our estimates suggest that there are precedents to the recent misalignment of the RMB in terms of magnitude, duration or breadth of currency coverage, and that a net build-up in foreign asset does not necessarily result in currency misalignment. In addition to finding little empirical justification for the claim of Chinese currency manipulation, we note that REER misalignment runs a risk of propagating inflation in the home economy.
  • Funke, Michael; Rahn, Jörg (2004)
    BOFIT Discussion Papers 14/2004
    Published in World Economy vol. 28, no 4 (2005), pp. 465-489
    Given that the value of China s currency has been hot topic recently, this paper explores the equilibrium levels of China s real and nominal exchange rates.Employing a Johansen cointegration framework, we focus on the behavioral equilibrium exchange rate (BEER) and permanent equilibrium exchange rate (PEER) models.Our results suggest that, while the renminbi is somewhat undervalued against the dollar, the misalignment is not nearly as exaggerated as many popular claims. JEL Classifications: F31, F32, F41, C32 Keywords: Renminbi, Yuan, China, Exchange Rate, Equilibrium Exchange Rate
  • Karjanlahti, Kristiina (2015)
    Euro & talous. Blogi
    Kesän ja syksyn aikana IMF tulee punnitsemaan, kuuluuko Kiinan renminbi maailman merkittävimpien valuuttojen joukkoon.
  • Cheung, Yin-Wong; Hui, Cho-Hoi; Tsang, Andrew (2017)
    BOFIT Discussion Papers 7/2017
    On August 11, 2015, China revamped its procedure for setting the official central parity of the renminbi (RMB) against the US dollar. Our empirical investigation suggests that the intertemporal dynamics of China’s central parity shifted after this policy change, though the deviation of the RMB offshore rate from the central parity and the US dollar index remained the two significant determi-nants of central parity after the policy change. In contrast, the VIX index only offered explanatory power up to August 2015. Thereafter, the onshore RMB rate and the difference between the one-month offshore and onshore RMB forward points have significant impacts on the central parity. While the US dollar index effect remains, we find no evidence of a rate-fixing role for the RMB exchange rate against the currency basket announced by China in December 2015.
  • Cheung, Yin-Wong (2014)
    BOFIT Policy Brief 11/2014
    Recently, China has been quite aggressive in promoting the international use of its currency, the renminbi (RMB). Historical experiences suggest that an active offshore market is essential for a global currency. Indeed, anecdotal evidence affirms the role of offshore RMB markets in pushing the RMB to the world. One should not, however, overplay the contribution of offshore markets. While offshore markets offer the opportunities to experiment with the global use of the currency, the overseas acceptance of the RMB is ultimately determined by both internal and external economic forces, and geopolitical factors. With its relatively small size, the offshore RMB is not likely to pressure China and alter its financial liberalization policy. A well-organized offshore RMB market will complement China's RMB internationalization policy, but could not raise the currency's global status beyond the level justified by it economic and political attributes. JEL Codes: F33
  • Funke, Michael; Gronwald, Marc (2007)
    BOFIT Discussion Papers 20/2007
    Published in The World Economy, Volume 31, Issue 12, pp. 1581-1598, Dec 2008
    On 21 July 2005 China adopted an undisclosed basket exchange rate regime. We formally assess and envisage the gradual evolution of the renminbi over time. We utilize nonlinear dependencies in the renminbi exchange rate and describe the smooth transition of the renminbi/U.S. dollar (RMB/USD) exchange rate using the family of time-varying autoregressive (TV-AR) models. Specifically, the nonlinear models allow for a smooth transition from one optimal level to another. Our estimation results imply that the RMB/USD ex-change rate will likely be about 7.42 RMB/USD in summer/autumn 2008. Keywords: China, renminbi, de facto exchange rate regime, TV-AR model, TV-AR-GARCH model JEL-Classification: C22, F31, F37
  • Cheung, Yin-Wong; He, Shi (2019)
    BOFIT Discussion Papers 3/2019
    We conduct a meta-regression analysis of 69 studies that generated 937 renminbi (RMB) misalignment estimates. The Bayesian Model Averaging (BMA) approach is adopted to allow for model selection and sampling uncertainties in assessing effects of study characteristics on these RMB misalignment estimates. Misalignment estimates are found to be influenced by the eight selected study characteristic types in our median probability model. The RMB misalignment estimate from models with various hypothetical combinations of study characteristics, however, is mostly insignificantly different from zero. It is also shown that the set of significant study characteristics is sensitive to the use of the least squares estimation method and the choice of benchmark study characteristics.
  • Karjanlahti, Kristiina (2015)
    Bank of Finland Bulletin. Analysis
    The international use of the renminbi for payments, investments and reserves has grown significantly. Following its increased influence, the IMF will still this year consider adding the renminbi as a SDR basket currency. For China the entry of the renminbi into the SDR basket is a clear political objective. It will be an indication of its stronger role in the global economy. On the other hand, for the IMF it will be critical to guard the credibility and usability of the SDR. This will require that any SDR-basket currency is freely usable and fulfils the operational requirements. Now it will be for the IMF Board to judge whether the renminbi is sufficiently widely used and traded to be deemed as “freely usable”.