The Impact of the Internationalization of the Renminbi on the International Monetary System: A Macroeconomic Approach
32nd Annual Conference of the European Economic Association (EEA), Lisbon, Portugal
We analyze the macroeconomic variables that influence currencies' shares in the international bond market, for the five currencies of the Special Drawing Rights (SDR) basket: the Chinese Renminbi (CNY), the Eurozone Euro (EUR), the British Pound (GBP), the Japanese Yen (JPY), and the USA Dollar (USD), in the period after the internationalization of the Renminbi. We collect data for bond issuances at the international level and use quarterly data between 2009Q3 and 2015Q4, in order to cover the period after the internationalization of the CNY in the offshore bond markets. Additionally, we define three regions for each currency: (i) America; (ii) Europe and (iii) Asia, Oceania, and Africa. We use a system-based model of Seemingly Unrelated Regressions Equations (SURE) and reject the hypothesis of independence of the errors across equations. The results show that the share of international bonds is influenced by the size of the economy, inflation rates, and by the yield spread. Moreover, they suggest that the determinants do not present a homogeneous pattern, differing not only between currencies but also between regions under the same currency. Our results indicate that the expansion of the Chinese economy is likely to support the internationalization of the currency across all regions and that the USD has a distinctive role that has not yet been achieved by any other currency.
International Currencies,International Bonds,Seemingly Unrelated Regressions,Macroeconomic Determinants of International Currencies.