China's Dominance Hypothesis and the Emergence of a Tri‐Polar Global Currency System

28 Pages Posted: 10 Dec 2014

See all articles by Marcel Fratzscher

Marcel Fratzscher

DIW Berlin; Centre for Economic Policy Research (CEPR)

Arnaud Mehl

European Central Bank (ECB)

Multiple version iconThere are 3 versions of this paper

Date Written: December 2014

Abstract

This study assesses whether the international monetary system is already tri‐polar by testing what we call China's ‘dominance hypothesis’, i.e. whether the renminbi already influences exchange rate and monetary policies strongly in Asia, a direct reference to the old ‘German dominance hypothesis’ which ascribed to the German mark a dominant role in Europe in the 1980s. Using a global factor model of exchange rates and a complementary event study, we find evidence that the renminbi has become a key driver of currency movements in Asia since the mid‐2000s, especially since the global financial crisis, in line with China's dominance hypothesis.

Suggested Citation

Fratzscher, Marcel and Mehl, Arnaud, China's Dominance Hypothesis and the Emergence of a Tri‐Polar Global Currency System (December 2014). The Economic Journal, Vol. 124, Issue 581, pp. 1343-1370, 2014. Available at SSRN: https://ssrn.com/abstract=2536172 or http://dx.doi.org/10.1111/ecoj.12098

Marcel Fratzscher (Contact Author)

DIW Berlin ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Arnaud Mehl

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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