The Renminbi as a Trading Currency: Evidence from Selected Countries Participating in the Belt and Road Initiative. Issue 5 (30th September 2020)

• Record Type: Journal Article
• Authors: Gao, Haihong; Li, Yingting
• Is Part Of: China & world economy. Volume 28:Issue 5(2020)
• Page Start: 45
• Page End: 63
• Publication Date: 2020-09-30
• Subjects: Belt and Road Initiative -- exchange rate pass‐through -- RMB internationalization -- trade volume elasticity; Economic indicators -- China -- Periodicals; China -- Economic conditions -- 1976- -- Periodicals; China -- Economic policy -- 1976- -- Periodicals; China -- Commerce -- Periodicals; Economics -- China -- Periodicals; 337.951
• DOI: 10.1111/cwe.12352
• Languages: English
• ISSNs: 1671-2234

Abstract

Abstract: This paper investigates the effects of the renminbi (RMB) exchange rate on trade prices and volumes in selected Belt and Road Initiative (BRI) countries in comparison with the effects of the US dollar. The stylized facts show that the RMB is underused in bilateral trade with selected BRI countries where intermediate goods dominate. By estimating the level of exchange rate pass‐through and trade volume elasticity, we find that the RMB is significantly correlated with the volume of imports in the sample countries, predicted by the producer currency pricing (PCP) paradigm. We also regroup intermediate and final goods between China and the BRI countries. The evidence shows that dollar fluctuation affects export volumes, reflecting the role of the US as a final goods destination, whereas the RMB exerts a significant impact on the volume of intermediate goods imported from China to the sample countries due to China's important position in global value chains.