One Currency, Two Markets: The Renminbi's Growing Influence in Asia-Pacific

Abstract

This working paper was written by Chang Shu (Bank for International Settlements), Dong He (Hong Kong Monetary Authority) and Xiaoqiang Cheng (Hong Kong Monetary Authority).

This study presents evidence of the renminbi’s growing influence in the Asia-Pacific region. The CNH market – the offshore renminbi foreign exchange market in Hong Kong SAR – is found to exert an effect on Asian currencies that is distinct from that of the onshore (CNY) market. Changes in the RMB/USD rates in both markets have a statistically and economically significant impact on changes in Asian currency rates against the US dollar, even after controlling for other major currency moves and the transmission of China’s monetary policy to the region. The continuing growth of the offshore renminbi market suggests that the influence of the CNH market is rising, but how long the independent impact will last will likely depend on China’s progress in liberalising its capital account. The findings also suggest that China’s regional influence is increasingly transmitted through financial channels.

Keywords: Renminbi Internationalisation, Renminbi Impact, Offshore Markets

JEL Classification: F31, F42, G15