CEPII, Recherche et Expertise sur l'economie mondiale
The Impact of Yuan Internationalization on the Euro-Dollar Exchange Rate

Agnès Bénassy-Quéré
Yeganeh Forouheshfar

 Highlights :

 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 : F31, F33
CEPII Working Paper
N°2013-14, May 2013

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