The Impact of Yuan Internationalization on the Euro-Dollar Exchange Rate

Agnès Bénassy-Quéré (1, 2) , Yeganeh Forouheshfar (3)

1 CES - Centre d'économie de la Sorbonne
2 PSE - Paris School of Economics
3 Université Paris Dauphine-PSL

We study the implication of a multipolarization of the international monetary system on crosscurrency volatility. More specifically, we analyze whether the internationalization of the yuan could modify the impact of asset supply and trade shocks on the euro-dollar exchange rate, within a threecountry, three-currency portfolio model. Our static model shows that the internationalization of the yuan (defined as a rise in the yuan in international portfolios) would be either neutral or stabilizing for the euro-dollar rate, whatever the exchange-rate regime of China. Moving to a dynamic, stockflow framework, we show that the internationalization of the yuan would make exchange-rate variations more efficient to stabilize net foreign asset positions after a trade shock.

Keywords: China; Yuan; Exchange-rate regime; Euro; Dollar

Domains: Economics and Finance

Agnès Bénassy-Quéré, Yeganeh Forouheshfar. The Impact of Yuan Internationalization on the Euro-Dollar Exchange Rate. 2013. ⟨hal-00961708⟩