Question

The East Asian Dollar Standard versus the RMB Bloc in East Asia.

Why the RMB would rise and the reason of RMB successful than The East Asian Dollar Standard according to the RMB Internationalization and its impact on dollar?

Answer 1

The process of RMB internalisation can lead to rise in RMB which will showcase the effects of the China emerging as a super power against the US economy and this has got severe impacts on dollar as discussed below. Also the same are the reason for its rise success. It is in 2015 that the chinese currency to the top position for it is being used the most in Asia Pacific to make transactions in China and Hong Kong.

1. Economic dynamics in East asia: China as an emerging superpower not only in Asia but also in the world has helped China after the 2008 financial crises to internalise the Renminbi. From 2010 its trade has been increasing and it emerged as one of the important export destinations of the world, thus creating a rise in RMB and the less usage of US dollar.

2.Deepening vertical specialisation and Factory Asia: China is a processing related trade nation. Most of the countries import many parts to China and it assembles them to export to the west. This production sharing platform helps in increasing the use of RMB by China as well as the other nations.

3. Better for other countries to peg their currencies to RMB: As China is a super exporter it would be better for the East Asian Central Banks to co-move their exchange rates to RMB to answer the competitive concerns. If the competitor country has got a flexible peg with China, then if there is an appreciation of RMB they can allow their currency too to appreciate and do not allow for inflation to happen still maintaining the competitiveness.

4. Desire for the macroeconomic stability: The instability caused by the East Asian dollar after the 2008 crises has provided an impetus for the RMB to rise.