The Geographic Distribution of International Currencies and RMB Internationalization

Korhonen, Iikka; Guo, Junjie; Liu, Fangge

doi:10.2139/ssrn.2616673

Cited by 4 publications

(4 citation statements)

References 3 publications

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“…The data consist of binary dummy variables that equal 1 if two countries are contiguous (common border), share a common official language (common language), and were ever in a colonial relationship (common colony); distance is the simple distance (in kilometres) between the two most populated cities of a particular dyad. Gravity covariates have been used in other studies of international currency status using dyadic panel data, such as He et al (2015).…”

Section: Mercury Hypothesismentioning

confidence: 99%

Mars or Mercury? The geopolitics of international currency choice*

2019

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Summary We assess the role of economic and security considerations in the currency composition of international reserves. We contrast the ‘Mercury hypothesis’ that currency choice is governed by pecuniary factors familiar to the literature, such as economic size and credibility of major reserve currency issuers, against the ‘Mars hypothesis’ that this depends on geopolitical factors. Using data on foreign reserves of 19 countries before World War I, for which the currency composition of reserves is known and security alliances proliferated, our results lend support to both hypotheses. We find that military alliances boost the share of a currency in the partner’s foreign reserve holdings by about 30 percentage points. These findings speak to the implications of possible US disengagement from global geopolitical affairs. In a hypothetical scenario where the United States withdraws from the world, our estimates suggest that long-term US interest rates could rise by as much as 80 basis points, assuming that the composition of global reserves changes but their level does not.

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Section: Mercury Hypothesismentioning

confidence: 99%

Mars or Mercury? The geopolitics of international currency choice*

2019

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“…In view of this and basing on the model setting method applied in He et al (2016), the paper analyzes the impact of cross-border trade in RMB settlement factors [6] . Because the cross-border RMB settlement is related to not only the total economic volume, geographical distance, but also other factors, this paper adds other humanistic variables, such as bilateral trade volume, exchange rate to construct a new model.…”

Section: An Empirical Analysis Of Cross-border Rmbmentioning

confidence: 99%

The Status of Cross-border RMB Settlement and Its Influencing Factors: Evidence from Panel Data

Wang¹,

Wang²

2019

Proceedings of the 3rd International Seminar on Education Innovation and Economic Management (SEIEM 2018)

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In order to explore the current situation of crossborder RMB settlement and its influencing factors, this paper applies gravity model in empirical analysis. The results are as follows; the amount of cross-border RMB settlement is positively correlated with China's GDP, bilateral trade volume between China and border trading countries, and whether there is a positive correlation between China and its trade cooperation countries. Besides, cross-border RMBB settlement is negatively correlated with exchange rate fluctuation and geographical distance. Taking account of empirical results, this paper puts forward corresponding suggestions.

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“…where Dðrcts it Þ is a dummy indicator with Dðrcts it Þ ¼ 1 if rcts it [ 0, and 0 otherwise, rcts is the cross-border trade settlement of RMB with the settlement country i at time t, X is a vector of traditional gravity variables, such as GDP of China and its trade partner country, or area (cgdp and hgdp) and geographical distance (dist) (He, Korhonen, Guo, & Liu, 2016;Rose & Spiegel, 2007), and some additional gravity variables, such as trade scale (trade), and whether or not the country borders with China (contig). Besides, we also introduce two variables that will help us test the 4 Gravity models have been used in the trade, investment and international finance literature, based on cross-border bilateral data sets.…”

Section: Modelmentioning

confidence: 99%

“…The first stage of the decision to make a settlement or not can be estimated using the following regression specification:

D false(r c t s_{i t} false) = c + α X_{i t} + β e x c h_{i t} + {normalφ}_{t} + {normalε}_{i t},

where

D (r c t s_{i t})

is a dummy indicator with

D (r c t s_{i t}) = 1

r c t s_{i t} > 0

, and 0 otherwise,

r c t s

is the cross‐border trade settlement of RMB with the settlement country

i

at time

t

X

is a vector of traditional gravity variables, such as GDP of China and its trade partner country, or area (

c g d p

and

h g d p

) and geographical distance (

d i s t

) (He, Korhonen, Guo, & Liu, ; Rose & Spiegel, ), and some additional gravity variables, such as trade scale (

t r a d e

), and whether or not the country borders with China (

c o n t i g

). Besides, we also introduce two variables that will help us test the robustness of the model: exchange rate volatility (

e x c h v

) and commodity price (

c o m p r i

) .…”

Section: Empirical Designmentioning

confidence: 99%

An empirical analysis of the Renminbi: Exchange rates and cross‐border trade settlement

2017

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We introduce a gravity model to the currency choice for cross‐border trade settlement and the Heckman selection model to estimate the impact of the exchange rate on the cross‐border trade settlement of the Renminbi (RMB). We analyse bilateral exchange rates using panel data of China and 182 RMB settlement countries, or areas, from 2009 to 2014. We find that, regardless the choice stage or scale stage of RMB cross‐border trade settlement, the appreciation of the RMB does not necessarily promote RMB cross‐border trade settlement. This result holds when we take geographic differences into account and split the settlement of cross‐border trade into merchandise and service trade. We further investigate the channels through which exchange rate influences the cross‐border trade settlement of RMB, and we find that the appreciation of RMB impedes enterprises from choosing RMB as their settlement currency by reducing the scale of export to RMB settlement areas, whereas it speeds up RMB cross‐border trade settlement by increasing the scale of China's import from RMB settlement areas. We find that China's economic strength supports the development of RMB cross‐border trade settlement. However, the geographical distance between China and the RMB settlement areas may inhibit cross‐border trade settlement in RMB.

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The Geographic Distribution of International Currencies and RMB Internationalization

Cited by 4 publications

References 3 publications

Mars or Mercury? The geopolitics of international currency choice*

Mars or Mercury? The geopolitics of international currency choice*

The Status of Cross-border RMB Settlement and Its Influencing Factors: Evidence from Panel Data

An empirical analysis of the Renminbi: Exchange rates and cross‐border trade settlement

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