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Yuan displaces the dollar from the perspective of the leading currency

At a recent meeting in Tokyo, the attention of the heads of the world financial industry was riveted to the performance of the US Federal Reserve Chairman Ben Bernanke. In fact, in his speech, he urged them to pay less attention to him. Many politicians from developing countries complain that the weakening strategy conducted by the Fed runs their economies, contributing to the growth of inflation and asset prices. Mr. Bernanke noted that developing economies can protect themselves from the negative consequences related to its decisions, simply abandoning the binding of the national currency to the dollar. Developing economies are forced to weaken the monetary policy, every time Bernanke does it, it is precisely because of their habit to follow the American currency, no matter how weak it was. Politicians can listen to the words of Bernanke – and begin to ignore his decisions – before he thinks. During the speech (which was present by much fewer people) on the same day, Deputy Head of the Central Bank of China noted that his country no longer accumulates reserves in dollars. And according to the results of the new study, Arvinda Subramanian and Martin Kessler from the Institute of International Economics of Peterson in Washington, the District of Colombia, the influence of the dollar in the developing world is weakening. Currencies, accustomed to following the dollar, are now keeping a distance. Some of them have become much freer. However, in other cases, they steadily fall under the influence of another currency: yuan.

Some developing economies prone to inflation, such as Ecuador, use the dollar as an official currency. Others, such as Jordan, tie their exchange rate to him. Such an official policy is one of the indicators of the role of the dollar in the international arena. Mr. Subramanian and Kessler use a different indicator based on the movement of exchange rates in the market. They distinguish currencies inclined to follow the dollar during its daytime fluctuations relative to the third currency, such as the Swiss franc. Such a “joint movement” can reflect the alignment of forces in the market, and not an official policy. Absolute correlation is optional here. The connection should simply be close enough to exclude coincidences. Evaluating from this indicator, in their study, the dollar still affects 31 currency of 52 currencies of developing markets. But apparently, a number of countries, including India, Malaysia, the Philippines and Russia, after the financial crisis were binding. Comparing the last two years with the pre -crisis period (from July 2005 to July 2008), it is clear that in 38 cases the effect of the dollar decreased.

In the past, the dollar dominated in East Asia.However, now Yuan is the standard in the region. The seven currencies of this region are now following Yuan more closely than the dollar. When the dollar moves by 1%, East Asian currencies move in the same direction on average by 0.38%. When changing the positions of the yuan, they shift by 0.53%. Of course, Yuan has not yet gained complete freedom. Since June 2010 It grew up to the dollar by 9%, taking into account fluctuations in narrow day ranges. His close relationship with the dollar makes Sumramanian and Kessler solve a statistical puzzle. How can we say that the currency is in the footsteps of the dollar or yuan if these two currencies walk in the leg with each other? In previous studies, in the case of such uncertainty, it was assumed that currencies follow the dollar. The authors argue that now Yuan has become quite independent, which allows us to talk about its influence. However, the obvious popularity of the yuan can still be due to the glory of the dollar to some extent. In terms of East Asia, the influence of Yuan is still limited. When the dollar moves by 1%, the currencies of developing markets on average change by 0.45%. In relation to Yuan, they are shifted only by 0.19%. However, the currency of China will continue to grow as the Chinese economy and trading activities expand. Thanks to only two factors, according to Mr. Sumramanian, the Chinese currency should defeat the dollar in the struggle for the rank of leading currency somewhere in 2035. By this time, the chairman of the Fed will be collecting a smaller audience.