The authors investigate the determinants of currency choice for trade invoicing in a cross-country context while focusing on the link between capital account liberalization and its impact on the use of China's renminbi. Countries with more developed financial markets tend to invoice less in the U.S. dollar. Countries with more open capital account tend to invoice in the euro or their home currency. These results indicate that financial development or financial openness are key for challenging the U.S. dollar dominance in general and for internationalizing the renminbi for China.
The Rise of the “Redback” and China’s Capital Account Liberalization: An Empirical Analysis on the Determinants of Invoicing Currencies
- Volume or issue no.: La Follette School Working Paper No. 2014-001
- Author(s): Hiro Ito and Menzie D. Chinn
- Link to publication: Download PDF