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The Renminbi Bloc is Here: Asia Down, Rest of the World to Go?1)

Author

Listed:
  • Subramanian Arvind

    (Peterson Institute for International Economics)

  • Kessler Martin

    (Peterson Institute for International Economics)

Abstract
A country’s rise to economic dominance tends to be accompanied by its currency becoming a reference point, with other currencies tracking it implicitly or explicitly. For a sample comprising emerging market economies, we show that in the last 3 years, the renminbi (RMB) has increasingly become a reference currency which we define as one which exhibits a high degree of co-movement (CMC) with other currencies. In East Asia, there is already a RMB bloc, because the RMB has become the dominant reference currency, eclipsing the dollar, which is a historic development. In this region, 7 currencies out of 10 co-move more closely with the RMB than with the dollar, with the average value of the CMC relative to the RMB being about 60% greater than that for the dollar. We find that co-movements with a reference currency, especially for the RMB, are associated with trade integration. We draw some lessons for the prospects for the RMB bloc to move beyond Asia based on a comparison of the RMB’s situation today and that of the Japanese yen in the early 1990s. If trade were the sole driver, a more global RMB bloc could emerge by the mid-2030s but complementary reforms of the financial and external sector could considerably expedite the process.

Suggested Citation

  • Subramanian Arvind & Kessler Martin, 2013. "The Renminbi Bloc is Here: Asia Down, Rest of the World to Go?1)," Journal of Globalization and Development, De Gruyter, vol. 4(1), pages 49-94, August.
    • Handle: RePEc:bpj:globdv:v:4:y:2013:i:1:p:49-94:n:3
    DOI: 10.1515/jgd-2013-0017
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    References listed on IDEAS

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    More about this item

    Keywords

    Exchange rates; China; Renminbi; currency internationalisation; reserve currency; JEL Codes: F31; F33;
    All these keywords.

    JEL classification:

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

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