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RMB internationalization and exchange rate exposure of Chinese listed firms

Author

Listed:
  • He, Qing
  • Liang, Bailin
  • Liu, Junyi

Abstract

This paper investigates the impact of Renminbi (RMB) internationalization on the foreign exchange rate risk exposure of Chinese listed firms. We find that RMB internationalization significantly reduces firms’ exposure to exchange rate fluctuations, particularly for non-US dollar currencies. However, it also increases exchange rate exposure to the US dollar. The findings remain robust even when controlling for other macroeconomic factors, utilizing an instrumental variable approach based on government reports and US dollar performance, and conducting multiple robustness tests. We also find that companies with heterogeneous products, low market power, and high levels of international competition benefit the most from RMB internationalization. Despite the US dollar’s continued centrality in the global monetary system, RMB internationalization offers a relief measure to Chinese firms in terms of exchange rate exposure.

Suggested Citation

  • He, Qing & Liang, Bailin & Liu, Junyi, 2024. "RMB internationalization and exchange rate exposure of Chinese listed firms," Journal of International Money and Finance, Elsevier, vol. 145(C).
    • Handle: RePEc:eee:jimfin:v:145:y:2024:i:c:s0261560624000858
    DOI: 10.1016/j.jimonfin.2024.103098
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    Cited by:

    1. Si-yao Wei & Wei-xing Zhou, 2024. "The resilience of China's financial markets: With a focus on the impact of its climate policy uncertainty," Papers 2409.18422, arXiv.org.

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    More about this item

    Keywords

    RMB internationalization; Exchange rate exposure; Industrial competition; Foreign hedging;
    All these keywords.

    JEL classification:

    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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