IDEAS home Printed from https://ideas.repec.org/a/bla/chinae/v30y2022i3p42-74.html
   My bibliography  Save this article

The Role of Institutions: A Cross‐country Analysis of Renminbi Trading in Foreign Exchange Markets

Author

Listed:
  • Marina Zucker‐Marques
  • Pedro Perfeito da Silva

Abstract

We explore how China's geographically targeted policies impact RMB overseas use individually or in combination. The policies include swap agreements, clearing banks, investment quotas, and direct trading between Chinese renminbi (RMB) and non‐USD currencies. Adopting a fuzzy‐set qualitative comparative analysis and using Bank of International Settlements cross‐country data on foreign exchange markets, we find that institution building has lowered the barriers to international adoption of the RMB. Specifically, for countries economically close to China, high RMB trading is explained by either (i) having a clearing bank in the host market and direct quotations between the RMB and the local currency, or (ii) being a financial center and having access to the Chinese capital market. This combination of policies is explained by the creation of (i) “trading posts” that provide RMB liquidity abroad, and (ii) channels that allow actors to “recycle” offshore RMB funds. We triangulate our results with interviews conducted with senior People's Bank of China officials.

Suggested Citation

  • Marina Zucker‐Marques & Pedro Perfeito da Silva, 2022. "The Role of Institutions: A Cross‐country Analysis of Renminbi Trading in Foreign Exchange Markets," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 30(3), pages 42-74, May.
    • Handle: RePEc:bla:chinae:v:30:y:2022:i:3:p:42-74
    DOI: 10.1111/cwe.12418
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/cwe.12418
    Download Restriction: no
    File URL: https://libkey.io/10.1111/cwe.12418?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Hélène Rey, 2001. "International Trade and Currency Exchange," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(2), pages 443-464.
    2. Black, Stanley W., 1991. "Transactions costs and vehicle currencies," Journal of International Money and Finance, Elsevier, vol. 10(4), pages 512-526, December.
    3. Saleem Bahaj & Ricardo Reis, 2020. "Jumpstarting an International Currency," Discussion Papers 2015, Centre for Macroeconomics (CFM).
    4. Ke Song & Le Xia, 2020. "Bilateral swap agreement and renminbi settlement in cross-border trade," Economic and Political Studies, Taylor & Francis Journals, vol. 8(3), pages 355-373, July.
    5. Nicholas R. Lardy & Tianlei Huang, 2020. "China's Financial Opening Accelerates," Policy Briefs PB20-17, Peterson Institute for International Economics.
    6. Robert N McCauley & Catherine R Schenk, 2020. "Central bank swaps then and now: swaps and dollar liquidity in the 1960s," BIS Working Papers 851, Bank for International Settlements.
    7. Paul R. Krugman, 1984. "The International Role of the Dollar: Theory and Prospect," NBER Chapters, in: Exchange Rate Theory and Practice, pages 261-278, National Bureau of Economic Research, Inc.
    8. Yin‐Wong Cheung & Robert N McCauley & Chang Shu, 2019. "Geographic Spread of Currency Trading: The Renminbi and Other Emerging Market Currencies," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 27(5), pages 25-36, September.
    9. Cheung, Yin-Wong & Yiu, Matthew S., 2017. "Offshore renminbi trading: Findings from the 2013 Triennial Central Bank Survey," International Economics, Elsevier, vol. 152(C), pages 9-20.
    10. Fritz, Barbara & Biancareli, André & Mühlich, Laurissa, 2012. "Regional payment systems: A comparative perspective on Europe and the developing world," Discussion Papers 2012/10, Free University Berlin, School of Business & Economics.
    11. Benjamin J. Cohen & Tabitha M. Benney, 2014. "What does the international currency system really look like?," Review of International Political Economy, Taylor & Francis Journals, vol. 21(5), pages 1017-1041, October.
    12. Christophe Destais, 2016. "Central Bank Currency Swaps and the International Monetary System," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(10), pages 2253-2266, October.
    13. Armijo, Leslie Elliott & Mühlich, Laurissa & Tirone, Daniel C., 2014. "The systemic financial importance of emerging powers," Journal of Policy Modeling, Elsevier, vol. 36(S1), pages 67-88.
    14. C. P. Kindleberger, 1973. "The Formation of Financial Centers: A Study in a Comparative Economic Theory," Working papers 114, Massachusetts Institute of Technology (MIT), Department of Economics.
    15. Barry Eichengreen & Marc Flandreau, 2012. "The Federal Reserve, the Bank of England, and the Rise of the Dollar as an International Currency, 1914–1939," Open Economies Review, Springer, vol. 23(1), pages 57-87, February.
    16. Benjamin J. Cohen, 2015. "Currency Power: Understanding Monetary Rivalry," Economics Books, Princeton University Press, edition 1, number 10577.
    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. Zucker Marques, Marina, 2021. "Financial statecraft and transaction costs: The case of renminbi internationalization," Discussion Papers 2021/9, Free University Berlin, School of Business & Economics.
    2. 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.
    3. Barry Eichengreen & Arnaud Mehl & Livia Chiţu & Thorsten Beck, 2019. "Mars or Mercury? The geopolitics of international currency choice," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 34(98), pages 315-363.
    4. Carsten Detken & Philipp Hartmann, 2000. "The Euro and International Capital Markets," International Finance, Wiley Blackwell, vol. 3(1), pages 53-94, April.
    5. Ledenyov, Dimitri O. & Ledenyov, Viktor O., 2015. "Wave function method to forecast foreign currencies exchange rates at ultra high frequency electronic trading in foreign currencies exchange markets," MPRA Paper 67470, University Library of Munich, Germany.
    6. Menzie Chinn & Jeffrey Frankel, 2008. "Why the Euro Will Rival the Dollar," International Finance, Wiley Blackwell, vol. 11(1), pages 49-73, May.
    7. Yin-Wong Cheung, 2023. "A decade of RMB internationalisation," Economic and Political Studies, Taylor & Francis Journals, vol. 11(1), pages 47-74, January.
    8. Zhang, Cathy, 2014. "An information-based theory of international currency," Journal of International Economics, Elsevier, vol. 93(2), pages 286-301.
    9. Chiţu, Livia & Eichengreen, Barry & Mehl, Arnaud, 2014. "When did the dollar overtake sterling as the leading international currency? Evidence from the bond markets," Journal of Development Economics, Elsevier, vol. 111(C), pages 225-245.
    10. Satyendra Kumar Gupta & Ashima Goyal, 2014. "Reserve currencies: Can multiplicity work?," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2014-010, Indira Gandhi Institute of Development Research, Mumbai, India.
    11. Lyons, Richard K. & Moore, Michael J., 2009. "An information approach to international currencies," Journal of International Economics, Elsevier, vol. 79(2), pages 211-221, November.
    12. Menzie D. Chinn & Jeffrey A. Frankel, 2008. "The Euro May Over the Next 15 Years Surpass the Dollar as Leading International Currency," NBER Working Papers 13909, National Bureau of Economic Research, Inc.
    13. Alina Iancu & Gareth Anderson & Sakai Ando & Ethan Boswell & Andrea Gamba & Shushanik Hakobyan & Lusine Lusinyan & Neil Meads & Yiqun Wu, 2022. "Reserve Currencies in an Evolving International Monetary System," Open Economies Review, Springer, vol. 33(5), pages 879-915, November.
    14. Hyoung-kyu Chey & Geun-Young Kim & Dong Hyun Lee, 2016. "Who Are the First Users of a Newly-Emerging International Currency? A Demand-Side Study of Chinese Renminbi Internationalization," Working Papers 2016-19, Economic Research Institute, Bank of Korea.
    15. Mohammed Ahmed, Abdullahi, 2019. "China’s Bilateral Currency Swap Agreement: Strategic Move to Foster Political and Financial Hegemony," MPRA Paper 109879, University Library of Munich, Germany, revised 08 Oct 2019.
    16. Seghezza, Elena & Morelli, Pierluigi, 2018. "Rule of law and balance of power sustain US dollar preeminence," Journal of Policy Modeling, Elsevier, vol. 40(1), pages 16-36.
    17. Satyendra Kumar Gupta & Ashima Goyal, 2017. "Multiple Reserve Currencies and Renminbi Use," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 8(02), pages 1-35, June.
    18. Yin-Wong Cheung & Robert N McCauley & Chang Shu, 2019. "Geographic spread of currency trading: The renminbi and other EM currencies," GRU Working Paper Series GRU_2019_011, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    19. Eichengreen, Barry & Flandreau, Marc & Mehl, Arnaud & Chitu, Livia, 2017. "International Currencies Past, Present, and Future: Two Views from Economic History," OUP Catalogue, Oxford University Press, number 9780190659455.
    20. Annina Kaltenbrunner & Photis Lysandrou, 2017. "The US Dollar's Continuing Hegemony as an International Currency: A Double-matrix Analysis," Development and Change, International Institute of Social Studies, vol. 48(4), pages 663-691, July.

    More about this item

    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:bla:chinae:v:30:y:2022:i:3:p:42-74. 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: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/iwepacn.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.