Chinese RMB Research Articles

Exchange Rate Movements and China-East Africa Trade Balance: A New Perspective From RMB

This study estimates the long-term impact of Chinese RMB exchange rate movements on the trade balance between China and the Eastern African Belt and Road Initiative countries. The Pedroni cointegration analysis and the fully modified and dynamic OLS techniques are applied to the dataset from UNComtrade and China Statistical Yearbook 2019. Some specification novelties are the use of imports and exports as independent variables. By so doing, the paper proposes an alternative measure of the trade balance. We find that the RMB exchange rate movements are stable during the sample period and slightly affect the trade balance between China and the Eastern African BRI countries. Additionally, the study does not find evidence supporting the J-curve effect in China-East Africa trade balance. The empirical results suggest that the Eastern African BRI countries would gain much more trading collectively with China than individually. Therefore, the study strongly recommends that the East African Community accelerate its integration process and establish Export Quotas for trade outside the bloc.

The impact of macroprudential cross-border capital flow management on the linkage of domestic and foreign bond markets

While cross-border financing activities have increased significantly in recent years, the inflow of capital also leads to accumulated financial risks. To mitigate financial risks and promote the opening of financial markets, macroprudential management policies for cross-border financing have been implemented since 2016. This paper examines the effectiveness of macroprudential management policies in opening financial markets and managing foreign financial risks. We employ a time-varying parameter vector autoregressive model (TVP-VAR) to quantitatively analyze changes in the spillover effects between China’s bond market and foreign bond markets under different implementation stages of cross-border financing macroprudential policy. Our analysis reveals that the implementation of macroprudential management of cross-border financing has increased the total spillover effect between different bond markets, as well as the spillover effect from other bond indices to the Chinese RMB Bond Index and the spillover effect from other indices to the Chinese USD index. Moreover, our findings indicate that macroprudential management has reduced the total volatility spillover effect and the volatility spillover effect from other indices to the Chinese RMB Bond Index. These results highlight the importance of preventing external risk transmission when China’s financial market is opening to the world.

Analysis of Interest Rate Hikes and Exchange Rate Between U.S. and China

Recently, the rates between Chinese RMB and the USD have been on the rise with the deflation of Chinese RMB. This paper looked into the relationship of interest rate hikes and exchange rates between the U.S. and China. The interest rate in the U.S. is closely related to the strength of U.S. dollar and capital flow between the two largest economies in the world, therefore, the research into the topic could help understand how the interest rate hike in the U.S. currently would affect the exchange rate between the two countries. In this paper, methods like theoretical analysis are used to understand the historical background of interest rate hikes, the deciding mechanism, and used a case study to understand the impact of U.S interest hike on CNY-USD exchange rate. The result showed that the U.S. interest rate hike would lead to a depreciation of CNY. Meanwhile, as the Chinese monetary policy focuses more on independence, the correlation becomes lower.

Digital RMB vs. Dollar Hegemony? Friendly Foes in China-US Currency Competition

Digital transformations are impacting inter-state currency politics in strategically important ways. This article contributes to growing debates over the nature of US-China competition as the Chinese RMB rapidly digitizes in ways said to challenge the hegemony of a slower digitizing greenback. We categorize existing views of currency competition in the digital age into two categories: ‘conventional transformation’ and ‘transformative continuity’. Both these presently dominant perspectives, we argue, are overly techno-deterministic and stand in contrast to a third perspective we propose called ‘probabilistic flux’. Emphasizing the unanticipated and error-prone nature of technological change through Social Construction of Technology theory and informed by the IPE of monetary relations, we provide a more nuanced assessment of digital RMB’s challenges to dollar dominance stressing the functions, benefits and powers of international currency hegemony. Our conclusions are three-fold. First, wider digital currency alternatives to both the dollar and RMB have enriched the international currency functions of the former over the latter. Second, this broader array of digital currency alternatives combines with Chinese RMB digitization to gradually erode the functional base and benefits of dollar dominance position, as well as diminish the US’s international monetary power in both Asia and beyond. Third, what we see as largely friendly digital currency competition focused on domestic imperatives currently remains unpredictable. These findings pose present possibilities for greater international cooperation but equally for less friendly competition and flux particularly as US dollar digitization also unfolds in ways that are difficult to anticipate.

Impact of US monetary policy uncertainty on RMB exchange rate volatility:The role of international capital flows

This study investigates the impact of US monetary policy uncertainty on the volatility of the Chinese RMB exchange rate using a counterfactual SVAR model. Additionally, we examine the transmission mechanism from the perspective of different types of international capital flows. The findings suggest that an increase in US monetary policy uncertainty worsens RMB exchange rate volatility, and can have a significant impact on RMB exchange rate volatility through the intermediate transmission of China's direct investment flows and portfolio investment flows. Notably, the increase in US monetary policy uncertainty worsens RMB exchange rate volatility through these two channels respectively, before and following the “8.11″ exchange rate reform in 2015.

COVID-19 and commodity effects monitoring using financial & machine learning models

This article focuses on examining the effects of the COVID-19 pandemic and gold prices on the stock market. It primarily analyzes the relationship between COVID-19 cases and stock market prices, along with the impact on various commodity elements such as gold, oil, Chinese RMB, and US Dollar prices. These commodity elements are considered essential indicators of a country's financial health, and the study investigates how the increase in COVID-19 cases affects these financial elements. The research incorporates financial models, machine learning algorithms, and a financial Gaussian mixture model for data analysis and comparison. The findings shed light on the correlation between the virus, trading outcomes, and the importance of Karachi Stock Exchange-100 index data in preventing market crashes. The study also explores the implications of emergencies on the finance sector and provides insights for future financial predictions and the impact of social disasters on the economy.

Assessing the Asymmetric Effect of Local Realized Exchange Rate Volatility and Implied Volatilities in Energy Market on Exchange Rate Returns in BRICS

This paper investigates the leverage effect of local realised exchange rate volatility and implied volatilities in energy market on exchange rate returns in BRICS for the period May 7, 2012 to March 31, 2022, using the quantile regression technique. This paper reveals that oil implied volatility shocks (OVX changes) have a significant negative impact on Russian-U.S. Dollar exchange rate returns in all quantiles. When it comes to the Indian rupee and Chinese RMB returns/Dollar, the adverse effects of OVX are most apparent in both normal and booming market conditions. Although South Africa's currency rate returns are affected by both slump- and bust-market situations, Brazil also tends to be in higher quantiles. The implied volatility indices in the energy market have a substantial and considerable negative impact on the BRICS currencies, with the exception of China, where the effect is only noticeable in the upper extreme quantiles. The policy implications and suggestions are discussed.

Analyzing a dynamic relation between RMB exchange rate onshore and offshore during the extreme market conditions

Using the offshore and onshore market data of the exchange rate between US dollars and Chinese RMB, we analyze the dynamic dependence relation and volatility spillover effect between RMB exchange rates in the offshore and onshore market with the dynamic conditional correlation multivariate volatility Copula and BEKK models, as well as the linkage between these markets that may occur in the extreme market conditions. We find that the volatility clustering and persistence of the RMB exchange rate in the offshore and onshore markets are significant, and there is a two-way volatility spillover effect between these two markets, highlighting the risk transmission mechanism between the RMB exchange rate in the offshore and onshore markets. There is also a significantly positive time-varying dependence relation between the RMB exchange rate in the offshore and onshore markets, with a gradual the price convergence. These findings suggest that risk contagion should be carefully considered between different RMB exchange rate markets for further promoting the marketization formation mechanism of RMB exchange rate, and provides a reference of investigating the forward premium bias puzzle of the currency markets.

The effect of overseas investors on local market efficiency: evidence from the Shanghai/Shenzhen–Hong Kong Stock Connect

Using a recent stock market liberalization reform policy in China—the Stock Connect—as a quasi-natural experiment, this study examines the effect of stock market liberalization on market efficiency. Employing a dataset of 17,086 Chinese listed firms covering 2009 to 2018, we find that stock market liberalization improves the market efficiency of the Chinese mainland stock market. We further explore the potential channels through which the Stock Connect can enhance the efficiency of the A-share (A-shares refer to shares issued by Chinese companies incorporated in mainland China, traded in the Shanghai Stock Exchange and the Shenzhen Stock Exchange. They are denominated in Chinese RMB (the local currency). A-shares were restricted to local Chinese investors before 2003, are open to foreign investors via the Qualified Foreign Institutional Investor, RMB Qualified Foreign Institutional Investor, or the Stock Connect programs.) market. The findings show that liberalizing capital markets could benefit local market efficiency by increasing stock price informational efficiency and improving corporate governance quality. The additional analysis shows that stock market liberalization has a significant and positive impact on local market efficiency, enhancing firm value and reducing stock crash risk. We conduct various robustness checks to corroborate our findings. This study provides important policy implications for emerging countries liberalizing capital markets for foreign investors.

Exchange Rate Determinants of the US Dollar and Chinese RMB: a Classical Political Economics Approach

This paper contributes to the literature on determining the real exchange rates by developing a model that is based on key propositions of the classical political economy within which the real competition governs domestic and international trade, the labor theory of value is underneath domestic and international prices and, under these conditions, the principle of absolute cost advantage shapes international trade. The econometric analysis shows that the relative real unit labor cost is a key regulator of the long-run behavior of real exchange rates in both, China and the USA, for the period 1982-2018.

Consumer Industry in this Turn’s Monetary Policy: Evidence from Necessity and Non-Necessity Goods in US

The US Federal Reserve's interest rates have been acting as main factors that influence the economy, especially the consumers' consumption aspect of the market, since its very beginning. This paper researches the impact of Federal Reserve's interest rates hike on the consumption goods market. While the scale of the consumption goods market as a whole has too many niche industries that does not necessarily affect the common consumers, and there are too many factors to control for. Necessity goods market and non-necessity goods market data from the S&P 500 Index are chosen to be the dependent variables to represent the research purpose. On the other hand, Federal Reserve’s interest rates consists multiple variables and they all have different effects on the economy, the exchange rate between US dollars and Chinese RMB is chosen to be the independent variable in this research for its stability and strong link to the interest rates change. This paper uses VAR model and ARMA-GARCH Model to estimate such impact. The result shows that the effects of Federal Reserve's interest rates hike on necessity goods and non-necessity goods are overall negative effects. In particular, the interest rates hike affects non-necessity goods market way more than it affects the necessity goods market.

Dancing with dragon: The RMB and developing economies’ currencies

We analyse Chinese RMB co-movements with the currencies of other developing economies using daily data from January 1, 2006 to December 31, 2020. We find that the RMB plays an important role in East Asia & Pacific. Bilateral trade significantly increases the probability of RMB co-movements with other currencies while inflation differential decreases it. Additionally, the currencies of the economies that are more inclined to adopt a pegging system are less likely to co-move with the RMB. We further divide the sample into three sub-periods based on two major China’s currency reforms and the results are consistent with our main finding. We also investigate the nonlinear determinants of RMB co-movements in high and low volatility regimes, respectively, and show the different patterns. Last but not least, we find that RMB currency swap and the Belt and Road Initiative amplify RMB co-movements in larger and more developed economies.

Influence of in-vehicle crowding on passenger travel time value: Insights from bus transit in Shanghai, China

In-vehicle crowding is an external cost imposed on passengers by public transport. It is necessary to quantify the crowding discomfort to measure its influence on passengers’ travel choice. This study presents a stated preference survey embedded with revealed preference to investigate the influence of in-vehicle crowding on the travel choice behavior. The in-vehicle crowding degree is measured as standing density. Considering the in-vehicle environment and the subjective perception of passengers, the classification criteria for the in-vehicle crowding degree of bus transit are put forward. Then, the mixed logit model is used to establish the utility function of bus passenger travel choice behavior under different in-vehicle crowding degrees, and the value of travel time is calculated. Also, the functional relationship between in-vehicle crowding and travel time value is identified. In addition, by converting in-vehicle crowding into time, the travel impedance model considering in-vehicle crowding and the crowding value of time multipliers are defined. A study of Shanghai bus transit shows that when the standing density is higher than 7.5 passengers per square meter, bus passengers are willing to exchange 12.83 Chinese Yuan RMB for 1-hour travel time saving, and the perceived in-vehicle time is twice as long as the actual in-vehicle time. This study provides a reference for improving the attraction of bus transit and easing the decline in bus rides.

Measuring the Chinese Rmb's Global Influence and its Regional Heterogeneity: A Volatility Connectedness Approach

Measuring the Chinese Rmb's Global Influence and its Regional Heterogeneity: A Volatility Connectedness Approach

THE IMPACT OF COVID-19 OUTBREAK ON CHINA SECTORAL INDICES IN SHORT AND MEDIUM RUN

The novel coronavirus COVID-19 has severe consequences for countries around the globe. The purpose of this study to find out the impact of COVID-19 on China’s sectoral indices in the short and medium run. This research investigates the impact of COVID-19 on stock exchange index, exchange rates, money lending, and oil prices in the Chinese economy in the short and medium run by using secondary data of different sectoral sectors. The outcomes show that COVID-19 has strongly influenced these sectors. The Shanghai stock exchange is showing a decline in transactions due to this pandemic in the short run. But in the medium run, the outcome shown that Shanghai stock exchange has upward trend. The pandemic has reduced exchange rate of Chinese RMB to US dollar in short-run, but in medium run, Chinese RMB has gained appreciation against US dollar. The money lending for medium enterprises is showing downward curve. Result shows that money lending rate has reduced from 3.25% to 3.10% in the short-run and 2.95% in medium run. Overall, pandemic has had significant influence on the Chinese economy and development.

Enabling access to molecular monitoring for chronic myeloid leukemia patients is cost effective in China.

ObjectiveTo determine the cost effectiveness of molecular monitoring in patients with chronic myeloid leukemia in the chronic phase (CML-CP) compared to no molecular monitoring from a Chinese payer perspective.MethodsAnalyses were conducted using a semi-Markov model with a 50-year time horizon. Population data from multicenter registry-based studies of Chinese patients with CML-CP informed the model. Transition probabilities were based on time-to-event data from the literature. Utility values were obtained from published studies and were assumed to be the same for patients with and without molecular monitoring. Costs were based on values commonly used in the Chinese healthcare system, including drug acquisition, drug administration, follow-up, treatment for disease progression, molecular monitoring, and terminal care costs, and were in the local currency (2020 Chinese Yuan RMB [¥]). Outcomes were total life-years (LYs) and quality-adjusted life years (QALYs), lifetime costs, and incremental cost-effectiveness ratio.ResultsMolecular monitoring was dominant to no molecular monitoring, with increased LYs (1.52) and QALYs (1.90) and costs savings (¥93,840) over a lifetime compared to no monitoring in discounted analyses. The opportunity of patients that receive molecular monitoring to discontinue treatment during treatment-free remission, an opportunity not afforded to those without molecular monitoring, was the principle driver of this result. Results were similar across multiple clinical scenarios. Particularly, molecular monitoring remained dominant even if the proportion of patients achieving deep molecular response (DMR) was reduced by 10%-30%, or the proportion of patients maintaining DMR for 1 year was reduced by 10%-30% or increased by 10%. Cost savings in these scenarios ranged from ¥62,230 to ¥103,964.ConclusionsOverall, this analysis demonstrates that adherence to guideline recommendations of regular molecular monitoring of patients with CML-CP treated with TKIs provides significant clinical benefit that leads to substantial cost savings compared to no molecular monitoring from the perspective of a Chinese payer. In a time where healthcare systems have limited resources to allocate to optimal patient care, investment in molecular monitoring is an ideal choice for improving patient benefits at a reduced cost.

Revisiting the return‐volatility relationship of exchange rates: New evidence from offshore RMB

AbstractThis study investigates the return‐volatility relationship of the offshore Chinese RMB (CNH). Based on a regime‐switching copula model, we find that the return‐volatility relationship has changed since the August 2015 reform of the central parity formation mechanism. Before the reform, implied volatility increased only in response to CNH depreciation. After the reform, both large depreciation and appreciation of CNH trigger higher implied volatility. We show that both the “fear of a crash” and interest rate differentials are important factors contributing to the return‐volatility dynamics. Our study provides empirical evidence that the 2015 reform increased the two‐way flexibility of the USD/CNH exchange rate. Specifically, after the reform, both large negative and large positive USD/CNH returns have created fear of future losses, which causes investors to bid up option prices and therefore implied volatility.

Short-Term Capital Flows, Exchange Rate Expectation and Currency Internationalization: Evidence from China

This paper intended to employ a portfolio approach to assess the effect of exchange rate expectation on Chinese RMB internationalization and empirically test the interactive effects among short-term capital flows, RMB appreciation expectation and the internationalization process using a VAR model with monthly data ranging from February 2004 to December 2020. The results suggest that RMB exchange rate appreciation could lead to an increase in the foreign demand for RMB and RMB denominated assets, while RMB internationalization would attract more short-term capital inflow due to the reduced transaction costs. The empirical evidence from the VAR model estimation confirms the finding that expected RMB appreciation induces short-term capital inflow and promotes RMB internationalization. The robustness checks confirm the evidence. The results have important policy implication for RMB internationalization and for maintaining a sound and stable financial system.

The internationalization of the chinese rmb: road to the status of a world currency

The economic successes achieved by the PRC in recent years naturally raised the question of the possibility of converting the national monetary unit (yuan) into an international currency, which would play a significant role in servicing the country's foreign trade and investment relations, and in the turnover of global currency and financial markets. An effective solution to this problem can provide China with a number of long-term geopolitical and economic advantages; in particular, it would significantly increase the competitiveness of the financial system and the inflow of foreign capital into it. The basic prerequisites for the internationalization of the yuan have already been established: in terms of GDP and exports of goods and services, the PRC is one of the leading countries in the world, with significant foreign exchange assets accumulated, that ensure the stability of the financial system. For the successful promotion of the national currency abroad, there are still some obstacles, in particular, the free convertibility of the yuan has not been introduced and the capacity of the financial market is insufficient, which reduces the interest of foreign investors in the yuan. The emergence of the Chinese national currency as a full-fledged international currency implies a significant increase in its role in foreign trade operations of the PRC, an increase in the use of yuan financial instruments for placement by non-residents of private savings and official reserves, a further increase in volumes and diversification of conversion operations with the yuan in the domestic and foreign currency markets.

The impact of offshore exchange rate expectations on onshore exchange rates: The case of Chinese RMB

This paper examines the impact of offshore RMB exchange rate expectations on onshore RMB (CNY) exchange rates. Employing data for the period of 2005–2018, we show that overall offshore market expectations influence onshore RMB rates, but this effect is significant only for the period after the “Second exchange rate regime reform” in 2010. The non-uniform nature of this impact is also confirmed by the existence of a threshold effect of the expectations in the same period. The study improves our understanding of how the offshore RMB market influences onshore RMB spot rates as a result of the marketization reform of the RMB exchange rate regime.