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The Role of Institutions: A Cross-country Analysis of Renminbi Trading in Foreign Exchange Markets
Editors
Title / Series / Name
China & World Economy
Publication Volume
30
Publication Issue
3
Pages
Editors
Keywords
Foreign exchange markets
Fuzzy-set qualitative comparative analysis
Institutional context
International monetary system
Off shore RMB trading
RMB internationalization
Fuzzy-set qualitative comparative analysis
Institutional context
International monetary system
Off shore RMB trading
RMB internationalization
URI
http://hdl.handle.net/20.500.14018/14116
Abstract
We explore how China's geographically targeted policies impact RMB overseas use individually or in combination. The policies include swap agreements, clearing banks, investment quotas, and direct trading between Chinese renminbi (RMB) and non-USD currencies. Adopting a fuzzy-set qualitative comparative analysis and using Bank of International Settlements cross-country data on foreign exchange markets, we find that institution building has lowered the barriers to international adoption of the RMB. Specifically, for countries economically close to China, high RMB trading is explained by either (i) having a clearing bank in the host market and direct quotations between the RMB and the local currency, or (ii) being a financial center and having access to the Chinese capital market. This combination of policies is explained by the creation of (i) “trading posts” that provide RMB liquidity abroad, and (ii) channels that allow actors to “recycle” offshore RMB funds. We triangulate our results with interviews conducted with senior People's Bank of China officials.
Topic
Publisher
Place of Publication
Type
Journal article
Date
2022
Language
ISBN
Identifiers
10.1111/cwe.12418