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Working Paper 12-19

The Renminbi Bloc Is Here: Asia Down, Rest of the World to Go?

by Arvind Subramanian, Peterson Institute for International Economics
and Martin Kessler, Peterson Institute for International Economics

October 2012
Revised August 2013


In the last three years, the renminbi has increasingly become a reference currency for emerging-market countries—as manifested in greater co-movement of their currencies with it. The renminbi has already become the dominant reference currency in East Asia, eclipsing the US dollar, which is a historic development. Seven currencies out of 10 co-move more closely with the renminbi than with the dollar, with the average value of the co-movement coefficient relative to the renminbi being about 60 percent greater than that for the dollar. Subramanian and Kessler consider the prospects for the renminbi bloc to move beyond Asia based on a comparison of the renminbi's situation today and that of the Japanese yen in the early 1990s. If trade were the sole driver, a more global renminbi bloc could emerge by the mid-2030s, but complementary reforms of China' financial and external sectors could considerably expedite the process.

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