Comments on RMB internationalization: A play eld for speculators or a platform for real economy

Transcription

1 Comments on RMB internationalization: A play eld for speculators or a platform for real economy Zhi-Qian Wang (Hitotsubashi University) b141107k@r.hit-u.ac.jp December 14, 2014 Zhi-Qian Wang (b141107k@r.hit-u.ac.jp) RET-WEP-CESSA Joint Workshop December 14, / 10

2 RMB nternationalization RMB internationalization includes: ree transaction nternational reserve currency or becoming an international currency, RMB is expected to be, A major international trade settlement currency An international investment currency An international reserve currency Relevant authorities have promote the RMB internationalization by focusing on, Cross border trade settlement O shore market RMB internationalization progress is expected to be faster than ever before. Zhi-Qian Wang (b141107k@r.hit-u.ac.jp) RET-WEP-CESSA Joint Workshop December 14, / 10

3 RMB: Cross Border Trade Settlement Currency The volume of cross border trade settlement in RMB has increased rapidly from the middle of The volume of o shore RMB deposit has also increased rapidly. RMB as a settlement currency, mport trade settlement volume is greater than that of export Growth rate of RMB deposit is roughly same as the growth rate of import trade settlement in RMB Zhi-Qian Wang (b141107k@r.hit-u.ac.jp) RET-WEP-CESSA Joint Workshop December 14, / 10

4 RMB Bond in Hong Kong (Dim Sum Bond) ssuance of RMB bond in Hong Kong has been increasing since around 2010)RMB s o shore nancial markets are expanding. Diverse issuing body Ministry of inance (Mainland) inancial institutions Enterprises in Hong Kong Overseas nancial institutions Short term (1 to 3 year) Upward pressure (appreciation) on RMB Dim sum bond in short term is more attractive Dim sum bond market is still too small to enchant investors (to buy long term RMB bond) Zhi-Qian Wang (b141107k@r.hit-u.ac.jp) RET-WEP-CESSA Joint Workshop December 14, / 10

5 RMB Back ow Channel RMB s in-convertibility makes the RMB back ow channels are too narrow. Volume of RMB-D is much lower than the that of RMB cross border import trade settlement. RQ has been increasing since it was launched in 2011, Utilization of RQ, however, is still too low. RQD hasn t been taken a full advantage yet. * ROD: RMB Quali ed Domestic nstitutional nvestors * RO: RMB Quali ed oreign nstitutional nvestors Zhi-Qian Wang (b141107k@r.hit-u.ac.jp) RET-WEP-CESSA Joint Workshop December 14, / 10

6 actors Driving RMB nternationalization Cross border trade in RMB (both denomination and settlement) can reduce foreign exchange risk. Volume of settlement in RMB is greater than that of denomination in RMB)expectation of RMB appreciation Three empirical laws for choosing invoicing currencies ndustrialized countries: export country s currency > import country s currency > third country s currency ndustrialized country with developing country: industrialized country s currency or third country s currency (vehicle currency) Homogeneous goods are traded in US dollar or vehicle currency; Heterogeneous goods, however, are traded in exporter s currency Here, the author wants to nd out whether the international trade denominated in RMB contributes to the RMB trade settlement proportion. Zhi-Qian Wang (b141107k@r.hit-u.ac.jp) RET-WEP-CESSA Joint Workshop December 14, / 10

7 Comment 1 (mport and Export Trade Denominated in RMB) Export destination should be considered when considering whether import and export trade should be denominated in RMB. Complexity of the export products should be taken into account. Classi cation in labour intensive industries is too complex ) without bargaining power? Classi cation in high-tech industries is simple and clear ) with bargaining power? Processing trade is very important in China s export trade. But processing trade is excluded? Zhi-Qian Wang (b141107k@r.hit-u.ac.jp) RET-WEP-CESSA Joint Workshop December 14, / 10

8 Comment 2 (RMB nternationalization Arbitrage ndex) RMB internationalization arbitrage index What is the de nition? (igure 6. left hand)in percentage? bottom line ) year? what does it mean upward or downward?) Arbitrage index with currency carry trade Are there any relationships between Arbitrage index and currency carry trade? (t seems interrelated) Sharpe Ratio of RMB to foreign currency R SR A = R A R vol(a) VS. SR B = R B vol(b ) R, in general, is the return of risk free benchmark asset. f SR A > SR B, investing in A is more e cient than investing in B. Here, Sp = r rmb ri, how to compare the e ciency? (r vol(e rmb ) i is di erent) Zhi-Qian Wang (b141107k@r.hit-u.ac.jp) RET-WEP-CESSA Joint Workshop December 14, / 10

9 Comment 3 (Empirical Procedure) Statistical Signi cance of Adjustment and Cointegration Vectors When data series follow unit root process, it is necessary to identify whether cointegration relationships exist over the long run. n this case, a cointegration test can be employed to determine cointegration relationships. The error correction model that is used in the cointegration test is as follows: X t = p 1 Γ k X t k + ΠX t 1 + ε t k=1 Π = αβ 0, α is a matrix in terms of adjustment vectors, β 0 is a matrix in terms of cointegration vectors, X t 1 is a n 1 vector, and X t 1 = (X 1,t 1, X 2,t 1,, X n,t 1 ) 0. dentifying the statistical signi cance of adjustment and cointegration vectors. Zhi-Qian Wang (b141107k@r.hit-u.ac.jp) RET-WEP-CESSA Joint Workshop December 14, / 10

10 Comment 3 (cont d) 2 3 α 11 α 12 ΠX t 1 = αβ 0 X t 1 ) 4 α 21 α 22 5 β11 β 21 β 31 β α 31 α 12 β 22 β Long-term equilibrium relationship ) β 11 = β 12 = Error correction mechanisms based on exogenous factors ) β 11 = β 21 = 0, but β 31 = 1 weak exogeneity ) α 11 = α 12 = 0 X 1,t 1 X 2,t 1 X 3,t 1 or more detail, Enders, W., & Hurn, S. (1994). Theory and tests of generalized purchasing power parity: Common trends and real exchange rates in the Paci c Rim. Review of nternational Economics, 2, Zhi-Qian Wang (b141107k@r.hit-u.ac.jp) RET-WEP-CESSA Joint Workshop December 14, / 10