time：2024-07-01
Qing He, Bailin Liang, Junyi Liu
This study examines the impact of Renminbi (RMB) internationalization on the foreign exchange risk exposure of Chinese listed firms. The findings reveal that RMB internationalization significantly reduces firms’ exposure to exchange rate fluctuations for non-US dollar currencies but increases their exposure to the US dollar. These results remain robust even after controlling for macroeconomic factors, using government reports and US dollar performance as instrumental variables, and conducting multiple robustness tests. Moreover, firms with highly differentiated products, low market power, and intense international competition benefit the most from RMB internationalization. Despite the continued dominance of the US dollar in the global monetary system, RMB internationalization provides Chinese firms with a mechanism to mitigate exchange rate risks.
The growing use of RMB in international trade and financial markets allows Chinese firms to invoice in RMB, improving their market access and competitiveness. However, as the RMB exchange rate becomes more market-driven, firms may face increased exchange rate volatility. Using data from Chinese non-financial listed firms from 2010 to 2022 and the RMB Internationalization Index (RII), this study employs vector autoregression (VAR) analysis and rolling-window regression to examine the relationship between RMB internationalization and firms’ foreign exchange exposure. The results indicate that RMB internationalization is negatively associated with firms’ overall exchange rate exposure but positively correlated with their exposure to the US dollar.
To address endogeneity concerns, the study applies instrumental variable regression methods, selecting US dollar index volatility and government policies promoting RMB internationalization as instruments. The findings remain robust. Furthermore, given changes in China’s exchange rate policies, the study examines the pre- and post-“8·11” exchange rate reform periods and differentiates between normal and high-volatility periods in the offshore RMB market. The results confirm the persistent impact of RMB internationalization on exchange rate exposure, though its effect weakens during periods of high market volatility, suggesting that policy adjustments may influence this relationship.
The study further explores how firm-level competition characteristics moderate these effects. Firms with more differentiated products, lower market power, and greater exposure to international competition experience stronger reductions in exchange rate risk due to RMB internationalization. This suggests that RMB internationalization may enhance the global competitiveness of these firms by reducing their exchange rate fluctuations. Overall, this research contributes to the literature on the firm-level impact of RMB internationalization, providing a microeconomic perspective on how firms manage exchange rate risk in this context and highlighting the importance of balancing economic development and financial security in the RMB internationalization process.