12 July 2026, Volume 0 Issue 7

    

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  The Financial Agglomeration and Its Impact on China's Export Technological Sophistication: From a Spatial Spillover Perspective

  Feng Ling, Li Xinyi, Zhou Hao

  Studies of International Finance. 2026, 0(7): 3-17.

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  In recent years, the global economy has undergone profound restructuring, while economic globalization has faced increasing headwinds. China faces mounting pressure to transition from a trade model based on traditional comparative advantages toward one driven by technological innovation and upgrading. Existing studies indicate that Chinese firms remain constrained in their integration into global value chains, facing challenges such as low-end lock-in, limited development of proprietary brands, and insufficient core technological capabilities. At the same time, financing constraints and the misallocation of credit resources further impede firms' ability to upgrade export structures, thereby affecting export quality, structural transformation, and the shift toward higher value-added trade. While a substantial body of literature has examined these issues from the perspective of firm-level financing constraints, relatively little attention has been paid to the spatial dimension of financial supply, particularly how the geographic distribution of financial resources shapes export upgrading.
  To address this gap, this study investigates the impact of financial agglomeration on export technological sophistication from the perspective of spatial financial resource allocation. Using panel data from 278 Chinese cities, the paper employs two-way fixed effects models to estimate baseline relationships and further apply spatial Durbin models to capture potential spatial spillover effects. This empirical strategy allows us to distinguish between local effects and interregional transmission mechanisms associated with financial agglomeration.
  The results yield three main findings. First, financial agglomeration significantly promotes local export upgrading. This effect operates through multiple channels, including the generation of scale economies in financial services, improvements in resource allocation efficiency, and the mitigation of information asymmetry, all of which contribute to a more supportive financing environment for high-technology production and export activities. Second, financial agglomeration exhibits significant spatial spillover effects, positively influencing the export technological sophistication of neighboring cities. However, this spillover effect diminishes with increasing geographic distance, indicating the presence of spatial decay in financial externalities. Third, export technological sophistication in regional financial centers demonstrates clear path dependence, and interregional linkages in export upgrading are evident. In particular, the Yangtze River Delta and the Middle Yangtze River region display relatively stable patterns of coordinated diffusion, whereas regions such as Beijing-Tianjin-Hebei, Chengdu-Chongqing, and the Pearl River Delta remain in a transitional stage, shifting from factor agglomeration toward cross-regional diffusion. This suggests that regional coordination mechanisms are not yet fully developed and require further improvement.
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  Ten Foundations and Five Manifestations of A Multi-Dimensional Framework for International Reserve Currency Competition

  Zhu Min, Yang Siyao, Gong Bing

  Studies of International Finance. 2026, 0(7): 18-46.

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  International reserve currencies constitute the critical nexus sustaining the global trade and financial system, and their competitive dynamics directly shape the international economic order and the distribution of geopolitical power. Existing scholarly inquiry into the determinants of reserve currency status has been subject to three persistent limitations: a logical tendency to reason backwards from outcomes to causes; fragmented dimensional coverage across the literature; and the absence of systematic characterisation of the transmission mechanism linking foundational conditions to currency status. As the global economic landscape undergoes multipolarisation and profound geopolitical-economic reconfiguration, constructing a comprehensive analytical framework capable of coherently explaining the competitive dynamics of reserve currencies has become increasingly urgent. This paper adopts a cause-to-effect constructive perspective and, drawing on systematic literature review, and theoretical comparison, advances a framework of “Ten Foundations” and “Five Manifestations” determining reserve currency status. Specifically, dimensions such as economic and trade scale and value anchoring establish the requisite threshold conditions for entry; financial market deepening and cross-border payment network construction provide supply-side carriers that drive the systematic conversion of latent international demand into actual currency usage; domestic rule of law and international multilateral agreements constitute hard institutional constraints that enhance a currency's international credibility; and political credibility together with historical path dependence sediment soft-power barriers that amplify and perpetuate existing dominance advantages. Additionally, the paper clarifies that reserve currency competition should not be measured only by official reserve shares. Drawing on the functional evolution of international money, it defines five observable domains: reserve assets, trade invoicing, international payments, international financing, and foreign-exchange markets and exchange-rate anchors. These domains correspond to the store-of-value, medium-of-exchange, and unit-of-account functions across both official and private sectors. Building on this foundation, the paper constructs a multi-dimensional-to-multi-dimensional causal mapping framework that reveals the dynamic structural relationships among the foundational dimensions and the differentiated pathways and cross-domain feedback mechanisms through which these dimensions transmit to the manifestation domains. It argues that the foundations interact differently over the currency life cycle: economic scale, value anchoring, and domestic institutional trust are most decisive during the emergence stage; financial-market construction, liquidity provision, and cross-border networks become central in the consolidation stage; political credibility and historical path dependence matter more in the maintenance stage. It also distinguishes one-to-many, many-to-one, and feedback mechanisms among foundations and manifestations, showing that international reserve currency competition is cumulative, non-linear, and path-dependent rather than a static comparison of single market shares. Thereby, the paper provides theoretical coordinates and analytical instruments for the systematic analysis and assessment of multipolar currency competition.
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  The Belt and Road Initiative and the Governance of the International Monetary System Stability—Evidence from the Mitigation of US Dollar Risk Spillover

  Li Yantong, Wang Jinbin

  Studies of International Finance. 2026, 0(7): 47-60.

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  Exchange rate stability is a core component of international monetary system governance, while fluctuations in the US dollar exchange rate constitute a major source of risk transmission in global foreign exchange markets. The Belt and Road Initiative（BRI）serves as an important public platform through which countries participate in global governance. Examining whether the BRI can strengthen the capacity of participating countries and regions to withstand the spillover effects of US dollar exchange rate risk in their foreign exchange markets, and thereby provide a Chinese approach to addressing the governance challenge of mitigating the adverse spillovers of US dollar exchange rate risk in the international monetary system, is of significant practical relevance and research value.
  Drawing on the risk spillover framework proposed by Diebold & Yilmaz（2012, 2014）, this paper combines the Elastic Net technique with a VAR model and adopts a rolling-window approach to measure the dynamic net risk spillover effects of US dollar index returns on the exchange rate returns of other currencies. On this basis, using quarterly data from 2010 to 2024, this paper constructs a difference-in-differences model to empirically examine whether the BRI can effectively enhance the ability of participating countries and regions' foreign exchange markets to mitigate the spillover effects of US dollar exchange rate risk.
  The results show that the BRI improves the capacity of participating countries and regions' foreign exchange markets to cope with US dollar risk shocks. Approximately three quarters after the signing of relevant cooperation documents, the BRI began to reduce the net risk spillover effects of the US dollar exchange rate on the exchange rates of participating countries and regions, with the net US dollar risk spillover index declining by about 0.15. Mechanism analysis indicates that all five connectivity mechanisms effectively mitigate the impact of US dollar risk spillovers on the foreign exchange markets of participating countries and regions. Heterogeneity analysis shows that the BRI plays a mitigating role in active and passive US dollar appreciation cycles. Its effect in reducing US dollar risk spillovers is more pronounced among lower-and middle-income, non-landlocked, and lower political risk countries and regions.
  This paper provides new empirical evidence that the BRI enhances the stability of the international monetary system and, offers the following policy implications. Firstly, economic, trade, and financial cooperation under the BRI framework should be advanced to unleash its governance effectiveness in enhancing the stability of foreign exchange markets in participating countries and regions. Secondly, participating countries and regions should strengthen their ability to identify and assess US dollar-related risks and use the BRI to optimize macroeconomic policy responses. Thirdly, cross-border connectivity coordination platforms for landlocked participating countries and regions should be strengthened to enhance their capacity to participate in BRI connectivity. Fourthly, institutional arrangements and risk mitigation instruments, such as investment protection agreements and political risk insurance, should be improved to promote cross-border investment and trade, thereby creating favorable conditions for the BRI to play its role in mitigating US dollar risk.
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  Acting on a Whim: The Impact of Geopolitical Risks on Abnormal Capital Outflow Movements

  Zhou Ye, Li Bing, Zhang Wenbo

  Studies of International Finance. 2026, 0(7): 61-74.

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  Since the beginning of the 21st century, rising geopolitical risks have increasingly become a major factor affecting macroeconomic performance and resident welfare worldwide. The risk events stemming from geopolitical risks fundamentally disrupt global supply chains, financial markets, public safety, and political stability, making them one of the primary global risks today. Against this backdrop, studying the impact of geopolitical risks on international financial markets holds significant strategic value for preventing and mitigating external systemic financial risks and ensuring the stable operation of the macroeconomy.
  A significant manifestation of global financial order instability is abnormal capital flows, represented by large-scale capital outflows. From the perspective of investor expectations, this paper constructs a theoretical model of how geopolitical risk shocks affect capital outflows. Using quarterly data from 42 economies over the period 2000-2022, it empirically investigates the impact of geopolitical risk on abnormal capital outflow movements. The findings reveal that geopolitical risk significantly increases the probability of large-scale outflows by amplifying asset price volatility in the home economy, with this effect primarily manifested in the other investment category under the financial account of the balance of payments. Policy evaluation results indicate that foreign exchange macroprudential policy tools can mitigate geopolitical-risk-induced large-scale outflows to some extent, whereas capital account outflow controls intensify risk aversion and further raise the likelihood of large-scale outflows. Finally, heterogeneity analysis shows that economies with lower levels of financial development, relatively fixed exchange rate regimes, and higher degrees of resident risk aversion are more affected by geopolitical risks.
  The marginal contributions of this paper are threefold. Firstly, it integrates geopolitical risk and capital outflow movements into a theoretical macroeconomic modeling framework of open economics, offering a detailed characterization of how geopolitical risk affects large-scale outflows. By examining capital flow performance across sub-accounts of the non-reserve financial account, it systematically reveals differences in the responses of different account categories to rising geopolitical risk. Secondly, from the perspective of asset price volatility, it uncovers the mechanism through which geopolitical risk drives large-scale outflows, thereby complementing existing literature. Thirdly, it provides policy-relevant insights for policymakers in regulating geopolitical-risk-related large-scale outflows from the perspective of policy tool effectiveness.
  Based on these findings, the paper offers the following policy implications. Firstly, while strengthening international political and economic cooperation, attention should be paid to safeguarding cross-border financial assets. Secondly, the coordination between macroprudential policy tools and capital account control tools should be enhanced. Capital account control tools should be used with caution, and policies should be more targeted and effective. Thirdly, continued efforts should be made to improve financial system development and strengthen autonomous financial infrastructure. In the process of global economic and financial cooperation, economies should enhance the overall efficiency and security of their financial systems. Fourthly, for China specifically, it is necessary to establish a stable monitoring and management system for abnormal capital outflows, increase the cross-border use of the renminbi to strengthen its investment attributes as a safe asset, reasonably guide domestic market expectations, and improve the offshore renminbi circulation mechanism, to reduce the probability of large-scale outflows.
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  Domestic Economic Policy Uncertainty Shocks, Financial Intermediaries' Risk-Taking, and Exchange Rate Dynamics

  Wei Songmin, Mei Dongzhou

  Studies of International Finance. 2026, 0(7): 75-90.

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  Domestic economic policy uncertainty has become an important driver of exchange-rate fluctuations, especially in emerging economies exposed to volatile cross-border capital flows. The literature on the role of domestic policy uncertainty and its transmission channels remains underexplored. This paper examines how domestic economic policy uncertainty affects nominal exchange rates through financial intermediary risk-taking and why this channel generates heterogeneous effects between emerging and advanced economies.
  This paper develops a DSGE small open economy model with financial frictions, heterogeneous financial intermediaries, and cross-border capital flows. Higher domestic economic policy uncertainty reduces intermediaries' risk-taking, weakens their capacity to absorb foreign-exchange risk, and raises foreign-exchange risk premia, leading to lower cross-border financing, capital outflows, and exchange-rate depreciation. The model also incorporates countercyclical capital-flow management and sterilized foreign-exchange intervention to evaluate policy stabilization under uncertainty shocks. Empirically, using panel data for 14 major economies, the paper combines exchange-rate regressions, capital-flow estimations, and bank-level evidence. Results show that domestic economic policy uncertainty significantly depreciates exchange rates in emerging economies but has no significant effect in advanced economies. Robustness tests confirm that the findings are not driven by global risk, sovereign credit risk, or exchange-rate regime differences.
  Crucially, the evidence shows that financial intermediary risk-taking is the core transmission channel. In emerging economies, policy uncertainty significantly reduces net capital inflows. This indicates that uncertainty operates primarily through intermediary-mediated cross-border financing constraints rather than direct asset demand shifts. In advanced economies, capital flows are considerably less sensitive to uncertainty shocks. Micro-level evidence from 149 Chinese listed commercial banks further confirms this mechanism. Rising economic policy uncertainty significantly reduces banks' risk-taking, lowers risk-weighted asset growth, and reduces foreign-currency liabilities and constrains external funding. This contraction in intermediary risk-taking directly weakens the expansion of foreign-currency credit and reduces cross-border capital supply, thereby amplifying capital outflows and exchange-rate depreciation. These findings provide micro-foundations for the intermediary-based transmission mechanism emphasized in the theoretical framework.
  This paper proposes several policy implications. Domestic economic policy uncertainty should be incorporated into exchange-rate risk surveillance to improve exchange rate expectation management. Macroprudential regulation should be strengthened to prevent uncertainty shocks from being amplified through financial intermediaries, which tend to reduce risk-taking and external financing, thereby exacerbating capital outflows and depreciation pressures. Tools such as countercyclical capital buffers, liquidity requirements, and supervision of foreign-exchange exposures can help contain this transmission. In addition, improving banks' risk management capacity, capital adequacy, and stress testing is essential to enhance financial resilience.
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  The Impact of Green Finance Evaluation Policy on Corporate Greenwashing

  Chen Guojin, Huang Yihan, Zhao Xiangqin

  Studies of International Finance. 2026, 0(7): 91-106.

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  Greenwashing risk undermines the practical effectiveness of green finance. Whether relevant policies can regulate banks' green credit activities and thereby induce firms to reduce greenwashing remains an important yet underexplored question. To address this issue, this paper combines theoretical analysis with empirical examination to investigate systematically the effects of green finance evaluation policies on corporate greenwashing and the mechanisms through which these effects are transmitted.
  On the theoretical side, the paper develops a signaling game of green credit between banks and firms. In the model, firms differ in environmental compliance capability and, accordingly, decide whether to apply for green credit and how much greenwashing to undertake. Banks, operating under information asymmetry, cannot directly observe firms' true environmental quality and therefore must decide how much effort to devote to identifying greenwashing after receiving green credit applications. By incorporating green finance evaluation policies into this framework, the paper shows how policy-induced incentives and constraints shape banks' screening behavior and firms' strategic responses. It further distinguishes between a “scale incentive” effect and a “normative constraint” effect. The former arises when policies mainly strengthen incentives for green credit, thereby increasing firms' incentives to send favorable environmental signals. The latter arises when policies tighten constraints on banks' green credit business, inducing banks to place greater weight on environmental compliance and to exert stronger effort in identifying greenwashing. Based on this framework, the paper derives a set of theoretical propositions and corresponding empirical hypotheses.
  On the empirical side, the paper exploits the implementation of the 2021 Green Finance Evaluation Scheme for Banking Financial Institutions as a quasi-natural experiment. Using a sample of Chinese A-share listed firms from 2016 to 2024, it treats heavily polluting firms as the treatment group and estimates a difference-in-differences model, with a triple-difference specification used for further validation. The paper also develops a novel measure of corporate greenwashing. Building on the conventional words-versus-deeds approach, it distinguishes between “specific” environmental keywords that capture substantive environmental investment and “generic” keywords that are more likely to reflect symbolic disclosure. To identify the mechanism more directly, the paper further combines sustainability-report information from listed banks with loan-level bank-firm relationship data to examine whether the policy strengthens normative constraints on banks and improves their identification of corporate greenwashing in lending.
  The paper yields three main findings. Firstly, green finance evaluation policies significantly suppress corporate greenwashing. Under such policies, firms seeking bank credit reduce strategic greenwashing and shift toward more substantive environmental investment. Secondly, this effect operates because the policies strengthen normative constraints on banks' green credit business and thereby encourage banks to enhance their identification of corporate greenwashing. Thirdly, improving evaluation rules and regulatory assessment so as to strengthen the normative-constraint effect of green finance evaluation policies is key to curbing corporate greenwashing. More broadly, the evolution of China's green finance evaluation policies suggests that their greenwashing-suppression effect has progressed from absent to limited and then to significant, with the key lying in the continuous improvement of evaluation rules and regulatory assessment.
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  Asymmetric Spillover Effects of Tariff Shocks on Firm Risk: Insights from the Production Network Framework

  Ma Yaming, Peng Jingwen

  Studies of International Finance. 2026, 0(7): 107-120.

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  Against the backdrop of rising deglobalization, intensifying trade protectionism, and the accelerated restructuring of global industrial and supply chains, tariff shocks have become a critical external factor affecting corporate operational stability and risk exposure. In particular, China has developed a highly nested production network, and firms' distinct positions within this network determine that tariff shocks may exhibit differentiated transmission patterns. Therefore, examining the impact of tariff shocks on corporate risk from the perspective of domestic production networks is of great practical significance for understanding the micro-transmission mechanisms of trade policy and safeguarding industrial chain security.
  Existing studies have provided rich evidence on the economic consequences of tariff shocks and have preliminarily confirmed that production networks serve as an important vehicle for the asymmetric transmission of external shocks. However, there remains a lack of sufficient micro-level empirical evidence on how tariff shocks affect firms' own risk and whether they generate asymmetric risk spillovers to upstream and downstream firms through domestic production networks. To address this gap, this paper constructs firm-level tariff shock indicators and measures the upstream and downstream network effects of tariff shocks, systematically examining both the direct and indirect effects of tariff shocks on corporate risk.
  This study identifies three key findings. Firstly, increases in both China's import tariffs and destination-country export tariffs significantly raise firms' own risk, and tariff shocks generate asymmetric risk spillover effects on upstream and downstream firms along the domestic production network. Secondly, mechanism analysis reveals that China's import tariffs increase firm risk primarily by raising production costs and reducing innovation quality, while destination-country export tariffs increase firm risk mainly by weakening market competitiveness and reducing inventory efficiency. Regarding network spillovers, tariff shocks increase downstream firms' risk by raising production costs and reducing total factor productivity, while simultaneously alleviating upstream firms' risk through domestic demand support and a reduction in supply-demand mismatch. Thirdly, heterogeneity analysis shows that the impact of tariff shocks on firm risk is more pronounced among firms without outward foreign direct investment and those with lower levels of supply chain digitalization.
  This study makes three main contributions. Firstly, by integrating industry input-output linkages with firm-level tariff exposure, it systematically examines both the direct and indirect effects of tariff shocks on firm risk. In doing so, it moves beyond the conventional view of firms as isolated entities and provides a novel perspective on how trade policy shocks propagate through domestic production networks. Secondly, it advances the literature on tariff-induced risk spillovers by identifying asymmetric effects across upstream and downstream firms and further uncovering the distinct channels through which tariff shocks are transmitted along the supply chain. Thirdly, it extends research on firms' responses to trade policy uncertainty by examining the moderating roles of outward foreign direct investment and supply chain digitalization. The findings provide new micro-level evidence on how firms strengthen resilience and adapt to external trade policy shocks in an increasingly uncertain global environment.