Renminbi Internationalization Research Articles

China's trilemma: Exchange rate marketization, RMB internationalization, and exchange rate pricing power

We employ a threshold vector error correction model approach to investigate the impact of China's exchange rate marketization reform in August 2015 on the linkage between renminbi (RMB) onshore (CNY) and offshore (CNH) exchange rates and the impact of post-reform policy interventions by the People's Bank of China (PBoC) on CNY–CNH linkage. We find that, after the reform, price power over the RMB exchange rate changed from the onshore to the offshore market, in which the CNH significantly leads the CNY, and the CNY ceased to lead the CNH. Since the reform, the PBoC has faced a trilemma of exchange rate marketization, RMB internationalization, and maintenance of the onshore market's pricing power over the RMB exchange rate. The PBoC regained its RMB pricing power by reinforcing control over the onshore exchange rate and tightening offshore RMB liquidity, at the expense of setbacks in both exchange rate marketization and RMB internationalization.

Central bank swap arrangements and exchange rate volatility: Evidence from China

We examine how bilateral currency swap arrangements (BSAs) conducted by the People's Bank of China affect bilateral exchange rate volatility from 2009 to 2019. Applying an intervention analysis based on the model-selection approach, we find 21 (16) significant (negative) effects out of the 37 cases. The results imply that BSAs may depress bilateral exchange rate volatility, but the effects vary across countries and sometimes can even be reversed. Further investigation shows that financial market development and bilateral political relationships are significant determinants of such an influential pattern. These findings contribute to the study of central bank swap and Renminbi internationalization.

On the rationale and implications of China’s RMB internationalization: A global historical perspective

AbstractThis article addresses two interrelated questions pertaining to the Communist Party of China’s (CPC) attempt to internationalize the Chinese currency – the renminbi (RMB). First, what is the historical rationale of RMB internationalization, and what are its implications? Second, how does the rationale for, and implications of, RMB internationalization distinguish this process from the emergence of the US dollar as the global reserve currency? The article proceeds by framing the RMB internationalization process as a historical palimpsest that emerges from three critical moments following the establishment of the People’s Republic of China in 1949. It then assesses their collective global historical significance through a comparison with the rationale and effects of dollar internationalization. Through foregrounding the domestic and global path-dependence of the RMB’s historical evolution, the article argues that RMB internationalization does not constitute a rupture in global historical terms by challenging the dollar’s global reserve currency status; rather, it paradoxically consolidates a dollar-centric global monetary system because the CPC is committed to sustaining the Mao-era (1949-76) legacy of absolute macroeconomic control.

Renminbi Internationalization Process: A Quantitative Literature Review

As China’s position in the global economy has gradually improved, the importance of debates on the role of the renminbi in the international monetary system has significantly increased. This paper uses bibliometric methods—Bibliometrix R-package and its web-based graphical interface Biblioshiny—applied to data imported from Web of Science and Scopus to investigate and synthesize the renminbi literature published in English between 1995 and 2021. Science mapping offers a visual representation of different networks and clusters of authors’ keywords. The performance analysis, a quantitative evaluation of the most published sources, authors and papers on renminbi internationalization in the last 25 years, shows that the interest on the topic has grown, particularly after 2009 and 2016, respectively. There is also a high degree of concentration in the field, considering that out of the 802 analyzed papers, published in 393 sources, five authors and four journals had the highest impact. The content analysis identifies the main directions in the renminbi internationalization literature and future research questions to further explore this subject. The COVID-19 pandemic and post-Ukraine war era could generate a deeper reform of the international monetary system, in which the Chinese currency will strengthen its global position alongside the US dollar and the euro.

Currency internationalization and openness: A paradigm from renminbi

AbstractThis article intended to empirically test the interactive effects among renminbi (RMB) internationalization, trade and financial openness. Based on the monthly data from the first month of 2011 to the sixth month of 2018, we first build a vector error correction model includes RMB internationalization index, financial openness, trade openness, inflation rate, exchange rate and economic growth rate. Second, both linear and nonlinear Granger causality tests are conducted to analyze the causality of those variables. The results reveal that financial and trade openness have the greatest effects on the degree to which RMB is internationalized. In the short run, the trade openness will promote the development of RMB internationalization, while the financial openness will restrain such an effect. Long‐term conclusions are the opposite. Meanwhile, financial openness can influence RMB internationalization nonlinearly while RMB internationalization cannot influence financial openness either linearly or nonlinearly. In addition, a strong two‐way nonlinear Granger causality exists between RMB internationalization and exchange rate, and RMB internationalization and trade openness, respectively. Moreover, we find more nonlinear Granger relationships compared to linear Granger relationships, which implied that the relationships between RMB internationalization and other essential elements need to be assessed in the context of a complex nonlinear mechanism. The findings have important policy implication for RMB internationalization and provide a reference to jointly promote currency internationalization and openness.

Does Renminbi internationalization matter for petroleum security in China? Evidence from a disaggregate analysis

AbstractAs the largest oil consumer and sixth largest oil producer in the world, China's growing oil import is a premise to its energy security concerns. For China, petroleum security means supply security. The paper disaggregates petroleum security into three dimensions (domestic petroleum price—DOP, petroleum supply—PS and petroleum reserve—PR) and examines the impact of Renminbi internationalization (RMBI) on these dimensions based on linear auto regressive distributed lag (ARDL) procedure, and monthly data spanning from 2011M01 to 2022M03. The empirical results reveal evidence of long run equilibrium relationship between PR, PS and RMBI. On the long run and short run dynamics, RMBI is inversely related to DOP both in the short run and long run, but the impact is less than proportionately. However, RMBI and PS co‐move in the short run with 0.24% margin. In the same vein, RMBI and PR co‐move both in the short run and long run significantly. The impact of international oil price is positive on DOP but negative on PS and PR at least in the short run. Our finding signalled to the fact that increasing acceptance of the RMB in trade settlements and crude oil invoicing serve as a comparative advantage for China to engage in oil trade and complement the oil demand growth threatening the country's energy security drive. Therefore, we suggest diversification of crude oil import sources especially to regions/countries where RMB has been widely accepted. Prominence should be given to government controlled Strategic Petroleum Reserves (SPRs) and large oil companies should be compelled to raise the level of mandatory oil reserve for sustainable supply that keep pace with the growing demand for oil.

Chinese Institutional Considerations for the Internationalization of the Renminbi: A Network Effect Perspective

The article discusses the internationalization of the Chinese renminbi (RMB) in light of a redefined network effects framework to incorporate an original institutionalist perspective. Contradicting common wisdom, this approach shows that rather than slowing down in 2015, the strategy to internationalize the RMB has been redirected towards the creation of network effects, thereby directly challenging the institutions—such as the petrodollar system, creditworthiness, among others—that support the United States dollar’s hegemony.

Recent Developments and the Causes of Globalization for the Chinese Yuan Based on Statistical Analysis

We analyze the spatial evolutionary path and spatial evolutionary features of Renminbi (RMB) internationalization from three aspects: transaction intermediary, invoicing unit, and value storage. The main results show that: Firstly, the internationalization of RMB exhibits a certain path expansion pattern, such as initially expands to East Asian countries and regions, then gradually moves to Southeast Asia, Europe, South America, and Australia, and participating countries in the Belt and Road initiative. Secondly, the RMB settlement of cross-border trade presents the “coast-border-inland” spatial characteristics. Thirdly, bilateral currency swap shows “rapid growth” and “unbalanced growth.” Finally, the spatial structure of RMB internationalization has the significant features such as “from points to the area and from lines to the area.”

The Internationalization of Renminbi: The View of Brazilian Companies Regarding the Internationalization Process of Chinese Currency

China is the second largest global economy and Brazil’s largest trade partner. Ever since the financial crisis of 2008, there has been deliberate intention on the part of the Chinese government to internationalize its currency. This study aims to investigate the perception of Brazilian companies regarding the internationalization of renminbi and its impacts on trade with China. We performed a qualitative research through a theoretical sampling, selecting nine major companies presenting relevant trade with China. The research shows that, by adopting renminbi, companies can reap economic benefits such as increase in trade and reduction in transaction costs, for instance. Some barriers have also been identified, coinciding with the literature review, such as lack of liquidity, reliability and independence of the Chinese monetary authority and other issues related to cultural differences. The companies interviewed support certain initiatives, such as entering into swap agreement and the adoption, by the Brazilian Central Bank, of renminbi in its international reserves. Finally, this study proposes financial cooperation agreements with China, aiming at reducing barriers on employing the Chinese currency and increasing business deals between both countries.

The Gulf’s shifting geoeconomy and China’s structural power: From the petrodollar to the petroyuan?

Oil trade-related monetary arrangements have far-reaching impacts on the international monetary system and the global financial circuit. Current arrangements were set in the mid-1970s through the establishment of the petrodollar regime. This article empirically assesses the effective and potential impacts of the change in the integration pattern of the Gulf Cooperation Council (GCC) countries in the global economy on the two pillars of the petrodollar: recycling oil export revenue into the US economy and invoicing oil exclusively in dollars. The results show that the effectiveness of the petrodollar regime has been significantly reduced as China has overtaken the United States as the largest destination for the recycling of the oil receipts from the GCC through the trade channel. This article investigates the possible further expansion of oil settlements in the renminbi (RMB), based on China–GCC relations, following China’s release of the petroyuan contracts. The structure and the weight of their trade and investment relations constitute solid grounds to settle bilateral oil trade in RMBs. Moreover, China’s targeted and regulated financial opening provides operating channels for overseas holders of RMBs to invest in China’s relatively attractive assets. To better discern the GCC’s inclination to change their oil-invoicing arrangements, this article analyses their participation in the RMB internationalization channel.

Is the Renminbi a Global Currency? An Evaluation Based on Offshore Foreign Exchange Market Trading Patterns

This article provides a new framework to evaluate the status of Renminbi internationalization. It proposes that the trading patterns of a currency in the global foreign exchange market embody the currency’s position in the international monetary system. Based on foreign exchange trading data provided by CLS Group, the article constructs a ranking of major international currencies including the Renminbi. It finds that the Renminbi shares more similarities in foreign exchange trading patterns with the established global currencies like the US dollar and the Euro than with those regional currencies. The article also explores the policy implications that the new evaluation approach provides.

Internationalization of Renminbi as a Function of China’s Foreign Exchange Policy

This article discusses the prospects of the Chinese renminbi (RMB) to expand its sphere of influence and become a full-scale reserve world currency. The methods used in the article are retrospective analysis and graphic analysis. The work is divided into three sections. The first section provides a broad overview of modern reserve currencies. The second part characterizes RMBs shaping as a reserve currency, as well as inner and outer factors that influence its status. The third section includes information about RMBs current status and its perspectives for being a reserve currency in the future. The article argues that currently RMB has already become a regional reserve currency in Asia-Pacific. Chinese government continues to make steps towards international expansion of RMB, yet these steps cannot make RMB one of the leading world currencies together with USD and EUR in the nearest decade.

The rise of Renminbi in Asia: Evidence from Network Analysis and SWIFT dataset

The rise of Renminbi (RMB) is one of the significant changes of the international monetary system since the 2008 global financial crisis. Through its economic influence in trade and direct investment, China has promoted the international use of RMB in both the global market and the regional market of East Asia. This paper documents the progress of RMB internationalization with the settlement currency information from the SWIFT dataset. Specifically, we conduct a network analysis to study the spillover effects among USD, EUR, GBP, JPY and RMB. From October 2010 to February 2018, the influence of RMB is found to be minimal in the global market, but dominant within ASEAN+3, especially for transactions related with real economy. These results indicate that RMB has become an influential regional currency, but it remains far from a truly international currency with global prominence.

A decade of RMB internationalisation

This article recounts China’s renminbi (RMB) internationalisation experiences since the 2009 RMB cross-border trade settlement initiative. In the first few years, the RMB made inroads into global financial markets and had a few remarkable accomplishments, including the Special Drawing Right currency status. Since the 2015 market turmoil, RMB internationalisation has levelled off – possibly due to changes in both domestic and geopolitical conditions. The RMB is currently under-represented in the global market. China’s deliberate and schematic policies will elevate the RMB’s global stature in a gradual manner but there will not be a leapfrogging in the near term.

The impact of cross-border knowledge management on internationalizing Renminbi: lessons from the belt and road initiative

PurposeIn the process of Renminbi (RMB) internationalization, the heterogeneity and complexity in knowledge under the multicultural contexts have been considered as important factors that can have profound impacts on the cross-border flow of the RMB currency. Moreover, COVID-19, an exogenous shock, also triggers more in-depth reflection on the relationship between cross-border knowledge management and the financial risk governance. In addition, the needs to effectively respond to global risks and crises prompt the necessity in systematically establishing an effective cross-border knowledge management mechanism and innovatively solidifying the knowledge bases needed for the further internationalization of the RMB.Design/methodology/approachBased on the analysis on the current status of the RMB internationalization, this paper qualitatively explores some major challenges and difficulties encountered in the process of RMB internationalization from the perspectives of knowledge management and cross-cultural theories. To effectively mitigate these challenges and difficulties, discussions and recommendations centered on three main aspects: cross-cultural management; cognition; and innovation for the further development of the RMB internationalization are also presented in this paper.FindingsBased on the analysis on the cross-border knowledge management and cross-cultural perspectives, this paper identifies three major challenges and difficulties that the RMB internationalization is encountering, including: cultural heterogeneity and its adverse impacts on the communication amongst economic entities; the existence of knowledge iceberg; and the difficulty it presents to cognition and financial innovation. Meanwhile, the authors also present recommendations on the development of the cross-border knowledge management mechanism for furthering the progress of internationalizing the RMB currency.Research limitations/implicationsFrom the perspective of cross-border knowledge management, this study not only elaborates on the recommendations aimed at further promoting the RMB internationalization but also provides reference and guidance for the state, central banks and commercial banks to play better roles in furthering the RMB internationalization.Originality/valueThis paper creatively integrates the micro knowledge management into the macro process of RMB internationalization, thoroughly discusses two main challenges and difficulties encountered in the process of RMB internationalization from the unique perspective of cross-border knowledge management under the multicultural contexts and provides relevant recommendations for RMB’s further internationalization. This study also enriches the exploration of knowledge management outcome variables and further expands the research field of knowledge management.

The Challenges of Reforming the International Monetary System in the Post COVID-19 World

AbstractThe paper analyzes if the international monetary system calls for reform and whether China and the renminbi will play a decisive role in the post COVID-19 world. It also evaluates the main scenarios and trends that is being discussed since the global crisis – selecting the relevant authors, journals, institutions and opinions – examines present conditions and tries to extrapolate into future trends. Opting for a nontechnical approach, the article could be a good insight into the international monetary system, for academics, non-experts and policy makers. The paper concludes that if the 2008 crisis has induced the growth of the China role in the international monetary governance and the increase of the renminbi internationalization, the COVID-19 pandemic and post crisis reconstruction could generate a deeper reform of the international monetary system, in which the Chinese currency will strengthen its global position alongside the US dollar and the euro.

Internationalization of renminbi and its influence on the system of risk-management of Russian companies

Internationalization of renminbi and its influence on the system of risk-management of Russian companies

Towards Rivalry or Concert? A China–US Financial Competition Triumvirate

Abstract Given the pivotal role of finance in interstate relations as a prominent source of international power, China–US financial competition, or even confrontation, could be more intense and devastating than trade conflict. It hence merits greater policy and academic attention and communication between the two states. This article takes stock of a triumvirate of Chinese views regarding China’s financial rise and potential China–US financial competition that has empirical and epistemological dimensions. Empirically, it signifies three major issue areas: Renminbi (RMB) strategies and dollar hegemony; the China–US financial imbalance and debt relations; and US dominance of global financial governance and ‘Zhongguo Fangan’—Chinese Solutions. RMB strategies to break dollar hegemony include a further three areas: International Monetary System reform; RMB internationalisation; and financial opening-up. Epistemologically, the empirical analyses present a triumvirate of embedded and interweaved angles: normative and universal; technical and micro level; and power and nationalist. Based on a triumvirate of perspectives, it argues that China’s financial rise is variously limited in relevant fields, and that China–US financial competition also varies according to different issue areas associated with different financial powers, and thus calls for a reductionist, field-specific, and pluralistic approach to managing China–US financial competition.

Nonlinear correlation between RMB internationalization and nonferrous metal prices

Abstract The correlation between Renminbi (RMB) internationalization and nonferrous metal prices was studied using the nonlinear Granger causality test and the dynamic conditional correlation-generalized autoregressive conditional heteroskedastic (DCC-GARCH) model. The results indicate that the relationship between RMB internationalization and nonferrous metal prices reflects a complex nonlinear mechanism. There was no mutual influence between RMB internationalization and nonferrous metal prices prior to the trials of the RMB settlement in the cross-border trade in July 2009. Since then, however, a bidirectional causal relationship between RMB internationalization and the price of copper and a unidirectional causal relationship from the price of aluminum to RMB internationalization were examined. In addition, due to the impact of extreme events, such as economic and financial crises, RMB internationalization and nonferrous metal prices are not always positively correlated but are rather occasionally negatively correlated.

Measuring the importance of RMB in the exchange rate spill-over networks: new indices of RMB internationalisation

Using an innovative network approach, this study constructs new indices of the renminbi (RMB) internationalisation and presents strong evidence of the RMB’s growing influence globally and regionally. We identify networks of exchange rate spill-overs and examine time-varying spill-over intensities among the RMB and world major currencies of G20 members as well as currencies related to the Belt and Road Initiative (BRI). Shocks from the RMB generate intensifying spill-overs across currency networks. The role of the RMB in the networks has increased steadily over time. Our findings highlight that the RMB has become increasingly important since China has initiated the marketisation reform of its currency and proposed to build the modern Belt and Road.