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The Impact of RMB Internationalization and International Situations on China’s Foreign Exchange Market: Dynamic Linkages between USD/CNY and SDR/CNY

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  • Yang-Chao Wang
  • Jui-Jung Tsai
  • Xingyu Chen

Abstract

With the RMB becoming the fifth international payment currency and its inclusion in the SDR currency basket, coupled with the opening of China’s capital market, RMB-related exchange rates have attracted increasing attention because of China’s RMB internationalization strategy. Using the DCC-GARCH model, we investigate how domestic (China) and international (USA, EU, UK, and Japan) policies and situations, including RMB internationalization, U.S. QE, European Debt Crisis, Brexit, and Abenomics, influence co-movement of the USD/CNY and SDR/CNY exchange rates from 2010 to 2017. We analyze the co-movement and provide explicit explanations for distinct areas (unrelated, long-term negative, and abruptly positive co-movement areas). Further, we find that RMB-related exchange rates remain largely influenced by domestic policies, while because of China’s opening-up policies they are also influenced by the international situations. Both US and EU policies exert a remarkable influence, but the effects of UK and Japan policies are decreasing.

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  • Yang-Chao Wang & Jui-Jung Tsai & Xingyu Chen, 2021. "The Impact of RMB Internationalization and International Situations on China’s Foreign Exchange Market: Dynamic Linkages between USD/CNY and SDR/CNY," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 57(5), pages 1437-1454, April.
    • Handle: RePEc:mes:emfitr:v:57:y:2021:i:5:p:1437-1454
    DOI: 10.1080/1540496X.2019.1624521
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    Cited by:

    1. Hao-Chang Yang & Ferry Syarifuddin & Chun-Ping Chang & Hai-Jie Wang, 2022. "The Impact of Exchange Rate Futures Fluctuations on Macroeconomy: Evidence from Ten Trading Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(8), pages 2300-2313, June.

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