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Global exchange rate spillover indices show growing influence of Chinese currency

January 17, 2020


Abstract : The global exchange rate spillover indices jointly launched by Xinhua Indices and the Economics at Xiamen University recently are pointing to growing influence of the Chinese currency Renminbi (RMB).

Photo: The launch event of the global exchange rate spillover indices report (2020) was jointly held by the School of Economics and the Wang Yanan Institute for Studies in Economics under Xiamen University and Xinhua Indices at Xiamen University on January 11.

BEIJING, Jan. 17 (Xinhua) – The global exchange rate spillover indices jointly launched by Xinhua Indices and the Economics at Xiamen University recently are pointing to growing influence of the Chinese currency Renminbi (RMB).

The indices, which include two sub-indices, namely, the index of global major currencies exchange rate spillovers and the index of the Belt and Road related currencies exchange rate spillovers, track the net effects of 8 major global currencies and 45 currencies of countries participating in the Belt and Road construction on the exchange rate fluctuation of other currencies respectively.

Among the 8 major global currencies, U.S. dollar (USD), the Euro and Chinese currency RMB rank among the top three, with positive net impacts on the exchange rate fluctuation of other currencies. In particular, the USD spillover index has reached 6.86 in early 2020, which means the net effect of a standard deviation of the USD change on the other seven currencies is 6.86 basis points on average.

For RMB, its spillover index is 1.65, showing good characteristics of an anchoring currency. In contrast, the other five major currencies, pound sterling, Swiss franc, Japanese yen, Australian dollar, and Canadian dollar (CAD), have negative net impacts.

The global exchange rates spillover indices characterize the evolution of global exchange rate spillover networks and reflect regime shift of the global monetary system.

In view of the dynamic networks of the global major currency exchange rate spillovers, U.S. dollar has been in the center and maintained a great position in the world's major monetary system.

In contrast, RMB was at the edge of the global exchange rate transmission network in 2008. With the internationalization of RMB, however, its impact on other major currencies has showed a rising trend.

Among the 45 currencies of countries participating in building the Belt and Road, the spillover index of Singapore dollar (SGD) took the lead before the initiative was proposed. It was mainly because Singapore has long been an international financial center.

Since the Belt and Road Initiative was proposed, the RMB has gradually taken the central position of the network, indicating a leading role in the Belt and Road related currencies.

The Economics at Xiamen University comprises three economics research units including the Wang Yanan Institute for Studies in Economics, Gregory and Paula Chow Center for Economic Research and the School of Economics. It is well known for econometric modeling in China.

Xinhua Indices is an authoritative index service provider under China Economic Information Service (CEIS) that develops, manages and operates index products and index derivatives.  (Edited by Duan Jing, duanjing@xinhua.org)

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Keyword: global exchange rate spillover indexes

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