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Recent renminbi policy and currency co-movements

2018; Elsevier BV; Volume: 95; Linguagem: Inglês

10.1016/j.jimonfin.2018.03.006

1873-0639

Robert N. McCauley, Chang Shu,

Market Dynamics and Volatility

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.