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Measuring the International Influence of the RMB and its Regional Heterogeneity: Theory and Evidence from the Global FX Market Network

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  • Panpan Wang
  • Xiaoxing Liu
  • Sixu Wu
  • Tsungwu Ho
  • Changqian Xie

Abstract

This study assesses the global and cross-regional influence of China’s currency, the renminbi (RMB). We first develop a theoretical framework to determine the channel through which progress in RMB internationalization can be mapped onto the market influence of the RMB exchange rate on that of other currencies. Using a volatility connectedness approach, we then construct a series of spillover indices reflecting the international influence of the RMB. We find that the RMB’s influence is worldwide but is smaller than that of major international currencies, such as the US dollar. Overall, the RMB has basically become a peripheral currency in Greater China, Central Asia, Eastern Europe, and some South Asian economies. Because of the Belt and Road initiative, regionalization of the RMB has also progressed in developing economies; however, China still has far to go in fully achieving internationalization of its currency.

Suggested Citation

  • Panpan Wang & Xiaoxing Liu & Sixu Wu & Tsungwu Ho & Changqian Xie, 2024. "Measuring the International Influence of the RMB and its Regional Heterogeneity: Theory and Evidence from the Global FX Market Network," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 60(11), pages 2389-2403, September.
    • Handle: RePEc:mes:emfitr:v:60:y:2024:i:11:p:2389-2403
    DOI: 10.1080/1540496X.2024.2318313
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