Recent renminbi policy and currency co-movements

• Published in: Journal of international money and finance Vol. 95; pp. 444 - 456
• Main Authors: McCauley, Robert N., Shu, Chang
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 01.07.2019
• Subjects: Exchange-rate determination; Renminbi internationalisation; Renminbi policy; Renminbi zone; Spillovers; Renminbi policy; F31; F33; Renminbi zone; Spillovers; Exchange-rate determination; Renminbi internationalisation
• ISSN: 0261-5606; 1873-0639
• DOI: 10.1016/j.jimonfin.2018.03.006

•EM currencies’ RMB co-movements vary with RMB management since August 2015.•RMB management places varying weight on market moves and major currency moves.•The RMB and EM currencies co-move more when basket management of the RMB is stronger.•Depending on RMB management, “RMB bloc” may be premature. This study investigates how variation in Chinese authorities’ renminbi management since the August 2015 exchange rate reform maps onto variation in the co-movement between the renminbi with regional and other emerging market currencies. We first identify three post-reform periods of RMB management: transition, basket management and countercyclical management. Across these periods, the reaction of the official “fixing” rate to market movements differed significantly. The co-movement with regional and Latin American currencies peaked in the basket period, when the management was most multilateral, making it possible to discern a renminbi zone in this period. By contrast, the decline in co-movement in the countercyclical management period since May 2017 leaves it premature to speak of a renminbi bloc. The dependence of the co-movements on renminbi management has important implications for renminbi internationalisation.