The SDR and influences on the currency swap agreements for RMB

ABSTRACT

We analyse the determinants of RMB as an international reserve currency and the impact of joining the Special Drawing Rights (SDR) on the currency swap agreements between China and other countries. A panel logit model is estimated using annual data for China and 33 countries for the period from 2009 to 2018. The results show that the relative economic size, trade dependence, interest rate differential, and geopolitical relation are important for determining the likelihood of signing the RMB bilateral swap agreements between China and the partner countries. Our analysis also reveals that RMB’s inclusion in the SDR was an important factor raising the probability of concluding an RMB bilateral swap agreement.

KEYWORDS:

• Chinese RMB
• international reserve currency
• currency swap agreement
• special drawing rights
• panel logit model

JEL CLASSIFICATION:

• F33
• F36

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ Note that i stands for 33 major countries in the world including Austria, Australia, Belgium, Brazil, Canada, Chile, Colombia, Cyprus, the Czech Republic, Germany, Spain, Ethiopia, France, UK, Greece, Hungary, Indonesia, Iceland, Italy, Japan, Luxembourg, Latvia, Malta, Netherlands, New Zealand, Portugal, Russia, Singapore, Slovakia, Switzerland, Thailand, Turkey, and South Africa. The People’s Bank of China: http://www.pbc.gov.cn/.

² To remove the heteroscedasticity of the explanatory variables, natural logarithm was taken except for the dummy variable.

³ For National Bureau of Statistics of China, see http://www.stats.gov.cn/

⁴ See http://www.fmprc.gov.cn/ and https://comtrade.un.org/.

⁵ The statistic of χ²(8) is 59.43 with the p value of 0.00, indicating that the fixed effect model is suitable. The Hausman Test result is available upon request.