Recent RMB policy and currency co-movements

TLDR

The August 2015 exchange‑rate reform prompted research into how the determinants of the renminbi’s daily fixing influence its co‑movement with regional and other emerging‑market currencies. The study examines how changes in the determinants of the renminbi’s daily fixing since the August 2015 reform affect its co‑movement with regional and other emerging‑market currencies. The authors delineate three post‑reform periods of RMB management—transition, basket management, and countercyclical management—to analyze the relationship. Co‑movement with regional and Latin American currencies peaked during the basket period when the daily fixing was most predictable and multilateral, fell during the countercyclical period (May–July 2017), and the dependence on RMB management underscores implications for renminbi internationalisation.

Abstract

This study investigates how variation in the determinants of the renminbi's daily fixing since the August 2015 exchange rate reform maps on to variation in the co- movement of 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. The co-movement with regional and Latin American currencies peaked in the basket period, when the daily fixing was most predictable and multilateral. By contrast, the decline in co-movement in the countercyclical management period between May and July 2017 leaves it premature to speak of a renminbi zone. The dependence of the co-movements on renminbi management has important implications for renminbi internationalisation.