The Influence of RMB Internationalization on Chinese Firms' Currency Risk Exposure

The Impact of RMB Internationalization on Chinese Firms' Exposure to Foreign Exchange Rates

Abstract:

This study delves into the influence of Renminbi RMB internationalization on foreign exchange rate risks for Chinese listed companies. It is found that the RMB's growing role in global financial markets significantly alleviates firms' exposure to fluctuations in currency exchange rates, particularly with respect to non-US dollar currencies. However, it also introduces an increased sensitivity to movements of the US dollar.

Our results mntn consistency even when accounting for other macroeconomic variables through statistical control and employing instrumental variable techniques based on government publications and the performance of the US dollar. Robustness checks further validate our findings.

We observe that firms with a diverse product range, lacking significant market dominance, and facing high levels of international competition benefit the most from this development in RMB internationalization. Despite the US dollar's paramount position in global financial markets, the RMB's ascent offers Chinese companies relief agnst foreign exchange risks.

Keywords: RMB Internationalization, Foreign Exchange Rate Exposure, Industrial Competition, Foreign Hedging

JEL Codes: O24, F31, G15

The article provides a detled analysis on how firms can adapt to the implications of RMB internationalization in terms of managing their currency exposure. It suggests that while the US dollar's dominance remns unchanged, the increased use and recognition of the RMB as an international currency can help mitigate foreign exchange risks for Chinese companies.

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