Is Renminbi a (Truly) International Currency? An Evaluation Based on Offshore Foreign Exchange Market Trading Patterns

Cheng, Lian and Luo, Junru and Liu, Lin (2018): Is Renminbi a (Truly) International Currency? An Evaluation Based on Offshore Foreign Exchange Market Trading Patterns.

Abstract

This article provides a new framework to evaluate the status of Renminbi internationalization. It proposes that the trading patterns of a currency in global foreign exchange market embody the currency’s position in the international monetary system. Based on foreign exchange trading data provided by CLS Group, the article constructs a ranking of major international currencies including Renminbi. It finds that Renminbi shares more similarities in foreign exchange trading patterns with the established global currencies like US dollar and Euro than with those regional currencies. The article also explores the policy implications that the new evaluation approach provides.

• Item Type: MPRA Paper
• Language: English
• Keywords: RMB; Foreign Exchange Market; Trading Pattern; Network
• Subjects: F - International Economics > F3 - International Finance > F31 - Foreign Exchange; F - International Economics > F3 - International Finance > F33 - International Monetary Arrangements and Institutions; F - International Economics > F3 - International Finance > F37 - International Finance Forecasting and Simulation: Models and Applications; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

References

Batten, J. and P. Szilagyi (2016): "The Internationalisation of the RMB: New Starts, Jumps and Tipping Points", Emerging Markets Review, 28, 221-238.

Cetorelli, N. and S. Peristiani (2013): "Prestigious Stock Exchanges: A Network Analysis of International Financial Centers", Journal of Banking & Finance, 37, 1543–1551.

Chen, Y. and B. Hu (2013): "Internationalization of the RMB: An Evaluation Framework", Economic and Political Studies, 5-20.

Cheung, Y. (2014): "The Role of Offshore Financial Centers in the Process of Renminbi Internationalization", BOFIT Policy Brief, No. 11.

Chinn, M. and J. Frankel (2005): "Will the Euro Eventually Surpass the Dollar as Leading International Reserve Currency?", NBER Working Paper, No. 11510.

Cohen, B. (1971): The Future of Sterling as an International Currency, London: Macmillan.

Craig, R, C Hua, P. Ng and R. Yuen (2013): "Chinese Capital Account Liberalization and the Internationalization of the RMB", IMF Working Paper, WP/13/268.

Hartmann, P. (1998): Currency Competition and Foreign Exchange Markets: The Dollar. the Yen and the Euro, New York: Cambridge University Press.

He, D. and R. McCauley (2010): "Offshore Markets for the Domestic Currency: Monetary and Financial Stability Issues", BIS Working Papers, No 320.

He, F., B. Zhang, M. Zhang, Q. Xu,and L. Zheng (2011): "The Current Situation, Prospects, Problems and Risks of Hong Kong Offshore RMB Financial Markets", International Economic Review, No.3 (in Chinese).

Islam, M. and O. Bashar (2012):"Internationalization of the Renminbi: Theory and Evidence", IGS Working Paper Series, No. 04/2012.

Kenen, P. (1983): "The Role of the Dollar as an International Currency", Occasional Papers, No. 13, Group of Thirty, New York.

Lee, J. (2010): "Will the Renminbi Emerge as an International Reserve Currency", in J. Sachs, M. Kawai, J. Lee, and W. Woo (eds.), The Future Global Reserve System: An Asian Perspective, Manila: Asian Development Bank.

Li, D.and L. Liu (2010): “RMB Internationalization: Empirical and Policy Analysis”, in W. Peng and C. Shu (eds.), Currency Internationalization, Global Experiences, and Implications for the Renminbi, 167-185, New York: Palgrave Macmillan.

Menkhoff, L., L. Sarno, M. Schmeling and A. Schrimpf (2013): "Information Flows in Foreign Exchange Markets: Dissecting Customer Currency Trades", BIS Working Papers, No. 405.

Moore, M. and R. Payne (2011), “On the Sources of Private Information in FX markets”, Journal of Banking and Finance, 35, 1250-1262.

Qiu, X. and T. He (2013): "Quantifying the Prospects and Impacts of RMB Internationalization", 7th "China Goes Global" Conference.

Schreiber, B. (2014): "Identifying Speculators in the FX Market: A Microstructure Approach", Journal of Economics and Business, 73, 97-119.

Subacchi, P. (2010): "'One Currency, Two Systems': China's Renminbi Strategy", Chatham House Briefing Paper, October.

Yu, Y. (2014): "How Far Can Renminbi Internationalization Go?", ADBI Working Paper No. 461.

Zoromé, A. (2007): "Concept of Offshore Financial Centers: In Search of an Operational", IMF Working Paper, WP/07/87.