【Abstract】

We estimate the time-varying co-movements of large set of bilateral exchange rates/the RMB and explore their relationship with the firm-level exchange rate exposure in China.

Empirical evidence reveals that firms’ exposure to exchange rate fluctuations increases during periods of heightened co-movements in exchange rate. The co-movements of emerging market currencies have a weaker effect on exposure compared to the co-movements of developed market currencies. This effect becomes more pronounced after the launch of One Belt One Road initiative, RMB inclusion in SDR basket and in highly multinational firms, providing evidence that the RMB’s internationalization (i.e., its anchoring effect) has generally helped to reduce Chinese firms’ exposure to exchange rate fluctuations of emerging market currencies.

【Keywords】

exchange rate co-movements, exchange rate exposure, RMB internalization

【Authors】

He Qing, Senior Research Fellow of IMI, Professor of School of Finance, Renmin University of China

Wang Wenqing, School of Finance, Renmin University of China

Yu Jishuang, Penghua Fund Management Co., Ltd