Research on the Currency“Anchoring”Effect of RMB in East Asia and Its Influencing Factors

Feng Yongqi, Dai Jiahang, Qu Kang

Studies of International Finance ›› 2020, Vol. 0 ›› Issue (2) : 56-65.

Studies of International Finance ›› 2020, Vol. 0 ›› Issue (2) : 56-65.

Research on the Currency“Anchoring”Effect of RMB in East Asia and Its Influencing Factors

  • Feng Yongqi1, Dai Jiahang1, Qu Kang2
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Abstract

RMB internationalization has made great progress since China proposed the RMB internationalization strategy, while RMB has played a huge role in investment and trade in the East Asian region. Using the state space model of timevarying parameters regression, this paper measures the “anchoring” effect of RMB in East Asia, and analyzes the multiple factors behind such effect by using the variable intercept in fixed effect panel model.
The results show that the “anchoring” effect of the US dollar has decreased a little, but it is still difficult to replace that in East Asia. The currency “anchoring” effect of Euro and Pound has decreased greatly, while that of Yen has increased significantly in recent years in East Asia. The currency “anchoring” effect of RMB in East Asia has been significantly improved since 2010. It has been close to the level of US dollar for most of the time, but it is easily affected by the international economic situation and emergencies. The difference of inflation rate and interest rate between East Asian economies and China has a significant impact on the “anchoring” effect of RMB in East Asia. However, the economic synchronization between the East Asian economies and China, the degree of dependence on China's market from East Asian economies, the degree of RMB internationalization are the most important factors to promote the currency “anchoring” effect of RMB in East Asia.
The marginal contribution of this paper is as followed. First, in order to measure the “anchoring” effect of currencies such as the US dollar, Yen, and RMB in East Asia, the paper uses Swiss Franc, which is independent of the US dollar, Euro,and Yen, as an independent currency to replace the special drawing rights (SDR) in the Frankel-Wei model. Second, the paper examines the changes in the currency “anchoring” effect in East Asian at the four different stages from July 21, 2005 to September 30, 2018. Third, some comprehensive variables of economy and trade differences between China and East Asian economies were selected to examine the main factors affecting the “anchoring” effect of the RMB.

Key words

RMB Internationalization / Currency Anchoring Effect / State Space Model / East Asia

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Feng Yongqi, Dai Jiahang, Qu Kang. Research on the Currency“Anchoring”Effect of RMB in East Asia and Its Influencing Factors[J]. Studies of International Finance, 2020, 0(2): 56-65

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