Study On The Anchor Currency Effect In The Process Of RMB Internationalization

In the trend of economic and financial globalization,the international monetary system presents a diversified trend.With the expansion of China’s economic strength and trade shares,discussions of the RMB internationalization have attracted much attention.Outbreaks of the Asian financial crisis and the subprime crisis not only exposed the deficiencies in the current international monetary system,but also prompted many countries to reconsider the irrationality of the past exchange rate regime as treating dollar as the sole anchor.Under such a background,Asian countries,which have got close economic ties,are also actively strive to get rid of the dollar hegemony through monetary cooperation.The "three-step" strategy of RMB internationalization shows that the process will be a transition via regionalization and trade settlement to a higher level.The anchor currency effect,as one of the manifestations of international currency functions,is closely linked to the trade settlement function.At the same time,the establishment of RMB anchor is also considered a practical way to carry out monetary cooperation in East Asia,given the solid foundation of reginal trade.Therefore,to study the anchor currency effect in the process of RMB internationalization is very necessary.In this paper,theoretical analysis,realistic analysis and empirical analysis are used to study the process of RMB internationalization from the angle of anchor currency.In detail,this paper firstly clarified the specific functions of international currency and the status of anchor currency functions.The main factors affecting the selection of anchor are summarized from classical theories.Then we analyze mainly from two perspectives of trade relations and network externalities,so as to prove the existence of suboptimal equilibrium in the selection of anchor and the importance of monetary cooperation.Secondly is the analysis of reality,the paper reviews the evolution and choosing experience of anchor currency selections and summarizes the most important factors have contributed to a currency to become an anchor currency in the history are economic and trade.Then we analyze the current situation of monetary cooperation in East Asia as well as RMB’s regional status,concluding that the anchor currency effect of RMB does have a realistic basis to be existing.In the part of empirical analysis,this paper draws a new modified Frankel-Wei model,using the rolling regression to measure the anchor currency effect of RMB of 12 economies among and out of Asian region.Results show that the effect of RMB does exists in most of those samples,but the degree is limited,given that USD is still the dominant currency in East Asia.Furtherly,this paper estimates the fundamental factors effecting the RMB’s effect from trade links and economic strength,and finds that currently,the fundamental driving force of this effect is a huge economic scale.However,the trade relationship only presents a limited impact,which is probably due to the disadvantage of RMB in trade settlements.Finally,in the conclusion part,based on the above findings,this paper suggests that to promote the internationalization of RMB orderly,we should focus mainly on the economic stability,the RMB’s usage in trade settlements,deepening financial reform,economic dialogues and cooperation.