ORCID

Abstract

The up-and-coming influence of the RMB on currency co-movements isexamined in this paper, in the context of a transpiring tri-polar international monetarysystem advocated in prior studies. The study is empirically conducted against thebackdrop of a more variable RMB exchange rate regime, which enables the integrationof the RMB into the international monetary system. The influence of the RMB is foundmost evident in Asia, being modest in Latin America while reaching Africa. The RMBco-moves most with the currencies of countries that have large shares in trade with Chinaconsiderably. Meanwhile, a residual-based instrumental variables model is proposed inthis study purposely for dealing with issues of common factor dominance, which prevailsin currency co-movements. The emerging influence of the RMB on currency comovements arises at the time when a multiple-reserve currency system is coming, andthe RMB is included as the third largest currency in the SDR basket. It is shored up bythe improved infrastructure, strengthened central bank cooperation and expandednetworks for cross-border RMB payments and settlements. It is concluded that the RMBhas increasingly integrated into the international monetary system as one of the majorplayers, effecting currency market movements actively alongside the US dollar and euro.

Publication Date

2024-01-01

Publication Title

International Journal of Finance and Economics

Volume

29

Issue

1

ISSN

1076-9307

Acceptance Date

2022-08-13

Deposit Date

2022-10-14

Embargo Period

2022-10-21

Keywords

foreign exchange rate, RMB, currency market

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