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The Rise of the Redback and the People's Republic of China's Capital Account Liberalization: An Empirical Analysis of the Determinants of Invoicing Currencies

dc.contributor.authorHiro Ito
dc.contributor.authorMenzie Chinn
dc.date.accessioned2015-04-10T10:17:31Z
dc.date.available2015-04-10T10:17:31Z
dc.date.issued2014-04-15
dc.identifier.urihttp://hdl.handle.net/11540/3968
dc.description.abstractWe investigate the determinants of currency choice for trade invoicing in a cross-country context while focusing on the link between capital account liberalization and its impact on the use of the renminbi (RMB). We find that while countries with more developed financial markets tend to invoice less in the US dollar, countries with more open capital accounts tend to invoice in either the euro or their home currency. These results indicate that financial development and financial openness are among the keys to challenging the US dollar dominance in general, and to internationalizing the RMB for the People’s Republic of China (PRC). Our model also suggests that the share of the RMB in export invoicing should have been higher than the actually observed share of less than 10%. The underperformance of RMB export invoicing can be attributed to the inertia in the choice of currency for trade invoicing; once a currency is used for trade invoicing or settlements, it becomes difficult for traders to switch from one currency to another. This same phenomenon was also observed in the cases of the Japanese yen and the euro at their inceptions as international currencies. Our model predicts that the share of RMB invoicing for the PRC’s exports will rise to above 25% in 2015 and above 30% in 2018, whether or not the PRC implements drastic financial liberalization. As the near future path of RMB use is also expected to be inertial, these forecasts are probably at the upper end of the actual path of RMB export invoicing.
dc.languageEnglish
dc.publisherAsian Development Bank
dc.rightsCC BY 3.0 IGO
dc.rights.urihttp://creativecommons.org/licenses/by/3.0/igo
dc.titleThe Rise of the Redback and the People's Republic of China's Capital Account Liberalization: An Empirical Analysis of the Determinants of Invoicing Currencies
dc.typeWorking Papers
dc.subject.expertDevelopment Economics
dc.subject.expertRegional Economic Development
dc.subject.expertEconomic Impact
dc.subject.expertAsian Development Bank
dc.subject.expertDevelopment
dc.subject.adbEconomies in transition
dc.subject.adbEconomic agreements
dc.subject.adbDevelopment indicators
dc.subject.adbADB
dc.subject.adbEconomic development
dc.subject.naturalComparative economics
dc.subject.naturalRegional economics
dc.subject.naturalEconomic development projects
dc.title.seriesADBI Working Paper Series
dc.title.volume473
dc.contributor.imprintAsian Development Bank
oar.themeEconomics
oar.themeDevelopment
oar.adminregionEast Asia Region
oar.countryPeople's Republic of China
oar.countryHong Kong
oar.countryChina
oar.countryRepublic of Korea
oar.countryMongolia
oar.countryTaipei,China
oar.identifierOAR-004011
oar.authorIto, Hiro
oar.authorChinn, Menzie
oar.importtrue
oar.googlescholar.linkpresenttrue


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    The Asian Development Bank Institute (ADBI) Working Paper series is a continuation of the formerly named Discussion Paper series which began in January 2003. The numbering of the papers continued without interruption or change. ADBI was established in 1997 in Tokyo, Japan, to help build capacity, skills, and knowledge related to poverty reduction and other areas that support long-term growth and competitiveness in developing economies in Asia and the Pacific.

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