Analysis On The Dynamic Linkage Effect Of Exchange Rate Between RMB And East Asian Currencies

Since the launch of the RMB settlement pilot program for cross-border trade in 2009,the internationalization of RMB has made great progress.While China has become world's second largest economy,the largest trading nation,and the largest foreign exchange reserve country,the RMB still does not exist in the international currency system with proper position.From the concept of "the Belt and Road" being first proposed in 2013,to the "Belt and Road Initiative" being formally promoted by 2015 and the "Belt and Road" forum by 2017,the "Belt and Road Initiative" advances the cooperation of neighboring countries'economic relations.At the same time,it also builds a good platform for the internationalization of the RMB.As a part of the "Belt and Road Initiative",East Asia is an area that has very closed economic and trade relationship with China.And it will also become an important part in promoting the "going out" of the RMB.Additionally,the increase in direct investment among East Asian countries,the deepening of cross-border bank links,and the increasing relevance of financial markets have enabled East Asian countries to make substantial progress in financial cooperation.Nevertheless,exchange rate stability is still a problem that cannot be ignored.Considering macroeconomic stability,East Asian countries have long anchored on the US dollar.However,the spread of the financial crisis in 2008 and the deepening of the European sovereign debt crisis have enabled East Asian countries(ASEAN 10+3)to reconsider the issues of regional financial stability and cooperation.First,in this context,this study discusses the development of the internationalization of the RMB and its position in the East Asian monetary system.The study summarizes the path for the internationalization of RMB through the literature review and analysis of investment,trade and financial data,and concludes that RMB has rapid development both in depth and breadth in functions such as payment,settlement and reserve.Then,by calculating the currency internationalization index and comparing the internationalization of RMB with that of other countries,the study analyzes the status of the RMB in the East Asia region and finds that the level of RMB internationalization has developed rapidly but there is a still big gap with the traditional currency Yen in East Asia.Second,we study the relationship of currency exchange rates in East Asian countries.Using the TVP-VAR model and DCC-GARCH model,this study analyzes the linkage relationship and the volatility spillover effect between RMB and other countries' currencies to study how the fluctuation of RMB exchange rate will affect the currencies of other East Asian countries and how fluctuation between RMB and other countries' exchange rates keep a long-term stable dynamic relationship.The result shows that there is a significant dynamic linkage between the RMB and the currencies of East Asian countries.However,different currencies perform differently in different periods.The Yen and Korean won represents an alternative relationship and the currencies of most Southeast Asian countries exhibit a positive linkage effect.At the same time,this long-term relationship will be broken when facing large systemic shocks.Third,this study measures the spillover effects between currencies in East Asia,and studies the relationship between RMB internationalization and RMB spillover effects,and then compares them with the result of the yen.The result indicates that the overall performance of the RMB is a positive spillover effect,but the RMB has a large spillover effect on foreign currencies while also bearing the spillover effect of foreign currencies on itself.At the same time,as the internationalization of the RMB advances,this external shock effect will become stronger.That is,the process of internationalization of the RMB is also a process of opening up China's financial market.During this process,the RMB will bear greater external shocks.Therefore,in the advancement of internationalization of RMB,the financial risks arising from currency linkage should be emphasized greatly.