The RMB Internationalization And Exporting Firms

A fraction of literature suggests that the RMB would challenge the role of the dollar as a leading global currency due to the thriving Chinese economy and increasing uncertainties in the U.S.economy and particularly in its currency in the aftermath of global financial crises of 2008.Chinese authorities initiated RMB piloting settlement policy in 2009,a milestone to the RMB internationalization,to facilitate cross-border transactions in merchandise trade with foreign countries and later extended into the field of direct investments,which translated into a "zero break" after RMB engaging in international settlement.To our best knowledge,this is the first project to gauge the effects of the RMB internationalization at the firm-level.First,using a novel dataset of Chinese exporting firm,we exploit the variation in pricing scheme to disentangle the causal effect of shifting to PCP on firm exports and its mechanism.The results show that the average treatment effects of piloting RMB settlement on firm exports are statistically and economically significant.Consistent with the previous studies,the effect is larger among firms with higher bargaining power,in smaller scale,and with more ordinary-oriented trade pattern.Further result suggests that the exporting firms can mitigate the costs from hedging FX risk if they were allowed to using the PCP other than the DCP.Second,we revisit the correlation between exchange rate pass-through(ERPT)with exogeneous shock in pricing scheme.The results show that there is a strict presumption on the competitiveness-ERPT nexus,which is only justified in the LCP case.Besides,the share of the settlement in RMB rises against the settlement in destination currency for multi-market firms,and rises against the settlement in the US dollar for single market firms.We also find explicit evidence for Gopinath(2015)’s reference pricing paradigm hypothesis.Third,merging with the listed firms dataset,we investigate the effect of the RMB internationalization on firm’s innovation,and find that participating in PCP fosters innovation in both input and output as a result of achieving bargaining power in settlement negotiation.This effect translates into further reducing exchange rate loss and less necessity in using FX derivatives.However,the innovation lacks efficiency over the sample.In the final chapter,we summarize the conclusion and implications.