Geographic Spread of Currency Trading: The Renminbi and Other Emerging Market Currencies

• Author: Chang Shu,Robert N McCauley,Yin‐Wong Cheung
• DOI: http://doi.org/10.1111/cwe.12292
• Published date: 01 September 2019
• Date: 01 September 2019

©2019 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 25–36, Vol. 27, No. 5, 2019

25

*Yin-Wong Cheung, Hung Hing Ying Chair Professor of International Economics, Department of Economics

and Finance, City University of Hong Kong, China. Email: yicheung@cityu.edu.hk; Robert N McCauley,

Senior Adviser, Monetary and Economic Department, Bank for International Settlements (BIS), Swiss. Email:

Robert.McCauley@bis.org; Chang Shu, Chief Asia Economist, Bloomberg, USA. Email: cshu21@bloomberg.

net. The authors thank participants in a HKIMR seminar for comments and Zuzana Filkova, Roger Lee, Denis

Pêtre and Alan Villegas for research assistance. The views expressed herein are those of the authors and not

necessarily those of the BIS.

Geographic Spread of Currency Trading: The

Renminbi and Other Emerging Market Currencies

Yin-Wong Cheung, Robert N McCauley, Chang Shu*

Abstract

This paper studies the ongoing diffusion of renminbi (RMB) trading across the globe, the

rst of such research of an international currency. It analyses the distribution in offshore

RMB trading in 2013 and 2016 using comprehensive data from the Triennial Central

Bank Survey of foreign exchange markets. In 2013, Asian centers favored by the policy

of RMB internationalization had disproportionate shares in global RMB trading. Over

the following three years, RMB trading seemed to converge to the spatial pattern of all

currencies, with a half-life of seven to eight years. The previously most traded emerging

market currency, the Mexican peso, shows a similar pattern, although it is converging

to the global norm more slowly. Three other emerging market currencies show a

qualitatively similar evolution in the geography of their offshore trading. Overall,

the RMB’s internationalization is tracing an arc from the influence of administrative

measures to the working of market forces.

Key words: foreign exchange turnover, international currency, international financial

center, renminbi internationalization

JEL codes: C24, F31, F33, G15, G18

I. Introduction

How does a currency move from having a largely national or regional role to having a

global role? One aspect of this is its trading geography. What is the path along which a

currency’s trading evolves from localized to global trading?

No doubt, the US dollar, the German deutsche mark and the Japanese yen in

turn all went through a process whereby their trading diffused across the globe. The