RMB Regionalization Analysis

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Liu (2011) presented four conditions that encourage RMB regionalization. First, free liquidity of production elements in East Asia is gradually increased. She suggested that easier capital and labor movements lead to optimum currency area. Certainly, the removal of tariff barriers and free movement of goods, services, labors, and capital within the common market are the basic requirement for establishing monetary union. With ACFTA, there will lead to greater link between China and ASEAN countries. When they build a closer trade and political link, RMB regionalization is just a matter of time. Second, economic openness is getting higher. The economic openness is one of the OACA’s determinants. According to International Chamber of Commerce, …show more content…
The score ranges from 1 to 6. The countries that score 5 to 6 are considered to be the most open market countries. Score 4 to 4.99 is considered as above average openness. Score 3 to 3.99 is considered as average openness. Score 2 to 2.99 is considered as below average openness and score 1 to 1.99 is considered as very weak. Table 4.8 illustrates the OMI score for China and ASEAN countries in three specific years; 2011, 2013, and 2015 (Q3). From Table 4.10, OMI’s scores for those countries mostly increased from year 2011. In particular, China’s OMI score is pleasing, rising from 2.8 to 3 which present a good opportunity for the RMB regionalization. Third, the similarity degree of monetary inflation of East Asian countries is higher. Generally, if the inflation of an economy within an area has a great similarity, the countries in that area are suitable to create a fixed exchange rates system, establishing the OACA. Except for Brunei in 2014, the direction of inflation of China and ASEAN countries is the same; there is no circumstance that one country is in inflation, while another is in …show more content…
As mentioned earlier, five ASEAN countries’ exchange rate already track closely to RMB, rather than the US dollar. In an influential paper (Subramanian and Kessler, 2013), it stated that when the US dollar value changes by 1%, those currencies move in the same direction by 0.34%, while with RMB the same movement was by 0.55%. The US dollar’s dominance as reference currency is now limited to only some countries like Hong Kong and Vietnam. Xu and Yang (2014) suggests that by examining the currency baskets one by one, there was a large trade off relationship between US dollar and RMB. When there is decreasing of US dollar, there is an increasing of RMB and four currencies including Malaysia ringgit, Philippine peso, Singapore dollar, and Thai baht show this tendency. The decreasing portion of US dollar varies from 10% to 40%, while the increasing portion of RMB varies from 10% to 30%. This increasing level mainly stems from their closer trade

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