"A country’s rise to economic dominance tends to be accompanied by its currency becoming a reference point, with other currencies tracking it implicitly or explicitly. For a sample comprising emerging market economies, we show that in the last two years, the renminbi (RMB) has increasingly become a reference currency which we define as one which
exhibits a high degree of co-movement (CMC) with other currencies. In East Asia, there is already a RMB bloc, because
the RMB has become the dominant reference currency, eclipsing the dollar, which is a historic development. In this
region, 7 currencies out of 10 co-move more closely with the RMB than with the dollar, with the average value of the
CMC relative to the RMB being 40 percent greater than that for the dollar. We find that co-movements with a reference
currency, especially for the RMB, are associated with trade integration. We draw some lessons for the prospects for the
RMB bloc to move beyond Asia based on a comparison of the RMB’s situation today and that of the Japanese yen in the
early 1990s. If trade were the sole driver, a more global RMB bloc could emerge by the mid-2030s but complementary reforms of the financial and external sector could considerably expedite the process..."
at http://www.piie.com/publications/wp/wp12-19.pdf
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