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

24 Pages Posted: 14 Mar 2013

See all articles by Agnès Bénassy-Quéré

Agnès Bénassy-Quéré

Paris School of Economics (University Paris 1)

Yeganeh Forouheshfar

Université Paris Dauphine

Date Written: March 13, 2013

Abstract

We study the implication of a multipolarization of the international monetary system on cross-currency 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 three-country, 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, stock-flow 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

JEL Classification: F310, F330

Suggested Citation

Benassy-Quere, Agnes and Forouheshfar, Yeganeh, The Impact of Yuan Internationalization on the Euro-Dollar Exchange Rate (March 13, 2013). CESifo Working Paper Series No. 4149, Available at SSRN: https://ssrn.com/abstract=2232680 or http://dx.doi.org/10.2139/ssrn.2232680

Agnes Benassy-Quere (Contact Author)

Paris School of Economics (University Paris 1) ( email )

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France
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HOME PAGE: http://www.parisschoolofeconomics.com/benassy-quere-agnes/agnesb.html

Yeganeh Forouheshfar

Université Paris Dauphine

Paris
France

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