The geographic distribution of international currencies and RMB internationalization

He, Qing; Korhonen, Iikka; Guo, Junjie; Liu, Fangge

doi:10.1016/j.iref.2015.10.015

Cited by 42 publications

(21 citation statements)

References 29 publications

(24 reference statements)

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“…local sales desks can now more quickly and efficiently communicate with the matching servers in offshore financial centers and are hence more competitive through a reduction in their fixed costs of trading. 50 He et al (2015) analyze a smaller cross-section of currencies and a different specification, but they too find no significant impact of capital controls. 51 Again, panel tobit estimates with random effects are reported in columns 1 and 2; panel GLM estimates are in columns (3) and (4); linear panel estimates with random effects are in columns 5 and 6; and pooled OLS estimates with currency fixed effects are in column 7.…”

Section: Resultsmentioning

confidence: 98%

“…An exception is e.g. He et al (2015), who do not however focus on the impact of technology on the location of FX transactions, as here. 21 A broad array of foreign exchange instruments are covered, including spot transactions, outright forwards, foreign exchange swaps, currency swaps, currency options and other foreign exchange products, including nondeliverable forwards.…”

Section: Datamentioning

confidence: 98%

“…HM Treasury (2003) and Cantillon and Pai-Ling (2008); on the renminbi see e.g. He et al (2015); on the risks associated with a Brexit for the City of London see e.g. Faulconbridge (2015).…”

Section: Electronic Foreign Exchange Trading and Submarine Cablesmentioning

confidence: 99%

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Cables, Sharks and Servers: Technology and the Geography of the Foreign Exchange Market

Eichengreen

Lafarguette

Mehl

2016

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe analyze the impact of technology on production and trade in services, focusing on the foreign exchange market. We identify exogenous technological changes by the connection of countries to submarine fiberoptic cables used for electronic trading, but which were not laid for purposes related to the foreign exchange market. We estimate the impact of cable connections on the share of offshore foreign exchange transactions. Cable connections between local markets and matching servers in the major financial centers lower the fixed costs of trading currencies and increase the share of currency trades occurring onshore. At the same time, however, they attenuate the effect of standard spatial frictions such as distance, local market liquidity, and restrictive regulations that otherwise prevent transactions from moving to the major financial centers. Our estimates suggest that the second effect dominates. Technology dampens the impact of spatial frictions by up to 80 percent and increases, in net terms, the share of offshore trading by 21 percentage points. Technology also has economically important implications for the distribution of foreign exchange transactions across financial centers, boosting the share in global turnover of London, the world's largest trading venue, by as much as one-third. Non-technical summaryThe impact of technology on services, and specifically on where services are produced and traded, is one of the great unanswered questions of the post-industrial age. One view is that cheap information and communication technology (ICT) significantly attenuates the effect of distance and other trading barriers on the geography of production. Another view is that distance and other trading barriers still matter significantly. In this paper we shed light on this debate using the global foreign exchange market as a case study.What might be called the "Flat World" hypothesis (after Friedman 2005) is that location, distance and other aspects of geography no longer matter in a ubiquitous 24-7 FX marketplace. In a world of high-speed communication, foreign exchange transactions can take place anywhere and should be observed in a growing number of places, reflecting the availability of relevant inputs.Alternatively, what might be called the "Flash Boys" hypothesis (after Lewis 2014) suggests that location matters more importantly than ever in a 21st-century foreign exchange market characterized by competiti...

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Section: Resultsmentioning

confidence: 98%

Section: Datamentioning

confidence: 98%

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Cables, Sharks and Servers: Technology and the Geography of the Foreign Exchange Market

Eichengreen

Lafarguette

Mehl

2016

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“…Liao and McDowell () conduct a cross‐country analysis of the factors that have led central banks to hold RMB‐denominated assets. He, Korhonen, Guo, and Liu () estimate the geographic distribution of the RMB's use in the global foreign exchange market, by employing a gravity model.…”

Section: The Literaturementioning

confidence: 99%

Which foreign states support the global use of the Chinese renminbi? The international political economy of currency internationalisation

2019

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The internationalisation of the Chinese renminbi has taken a path distinct from most cases involving previous international currencies, in that policy measures adopted by governments have played crucial roles in it. This paper conducts a cross‐country analysis of the factors that have led foreign governments to introduce three primary policy infrastructures to support renminbi use—renminbi swap lines, Renminbi Qualified Foreign Institutional Investor quotas and renminbi clearing banks. Our analysis shows that a state holding renminbi assets among its reserves or having more developed financial markets is likely to establish a higher level of policy infrastructure supporting renminbi use. We also find that a country's economic and political relations with China may have meaningful impacts on the level of its establishment of those renminbi‐related policy infrastructures. These findings significantly expand our understanding of renminbi internationalisation, by identifying which non‐Chinese factors have affected its progress to date. They also contribute meaningfully to the literature on currency internationalisation and international currencies in general, by calling attention to the roles of foreign states in the process of a currency's internationalisation.

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“…The first stage of the decision to make a settlement or not can be estimated using the following regression specification:

D false(r c t s_{i t} false) = c + α X_{i t} + β e x c h_{i t} + {normalφ}_{t} + {normalε}_{i t},

where

D (r c t s_{i t})

is a dummy indicator with

D (r c t s_{i t}) = 1

r c t s_{i t} > 0

, and 0 otherwise,

r c t s

is the cross‐border trade settlement of RMB with the settlement country

i

at time

t

X

is a vector of traditional gravity variables, such as GDP of China and its trade partner country, or area (

c g d p

and

h g d p

) and geographical distance (

d i s t

) (He, Korhonen, Guo, & Liu, ; Rose & Spiegel, ), and some additional gravity variables, such as trade scale (

t r a d e

), and whether or not the country borders with China (

c o n t i g

). Besides, we also introduce two variables that will help us test the robustness of the model: exchange rate volatility (

e x c h v

) and commodity price (

c o m p r i

) .…”

Section: Empirical Designmentioning

confidence: 99%

An empirical analysis of the Renminbi: Exchange rates and cross‐border trade settlement

2017

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We introduce a gravity model to the currency choice for cross‐border trade settlement and the Heckman selection model to estimate the impact of the exchange rate on the cross‐border trade settlement of the Renminbi (RMB). We analyse bilateral exchange rates using panel data of China and 182 RMB settlement countries, or areas, from 2009 to 2014. We find that, regardless the choice stage or scale stage of RMB cross‐border trade settlement, the appreciation of the RMB does not necessarily promote RMB cross‐border trade settlement. This result holds when we take geographic differences into account and split the settlement of cross‐border trade into merchandise and service trade. We further investigate the channels through which exchange rate influences the cross‐border trade settlement of RMB, and we find that the appreciation of RMB impedes enterprises from choosing RMB as their settlement currency by reducing the scale of export to RMB settlement areas, whereas it speeds up RMB cross‐border trade settlement by increasing the scale of China's import from RMB settlement areas. We find that China's economic strength supports the development of RMB cross‐border trade settlement. However, the geographical distance between China and the RMB settlement areas may inhibit cross‐border trade settlement in RMB.

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The geographic distribution of international currencies and RMB internationalization

Cited by 42 publications

References 29 publications

Cables, Sharks and Servers: Technology and the Geography of the Foreign Exchange Market

Cables, Sharks and Servers: Technology and the Geography of the Foreign Exchange Market

Which foreign states support the global use of the Chinese renminbi? The international political economy of currency internationalisation

An empirical analysis of the Renminbi: Exchange rates and cross‐border trade settlement

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