Cross-border RMB Settlement and the Development of Bilateral Trade Between China and Pakistan——Analysis Based on Threshold Effect

doi:10.16716/j.cnki.65-1030/f.2019.05.006

Abstract

Abstract: At the beginning of 2018, the Central Bank of Pakistan announced that it would allow RMB to be used for bilateral trade and investment settlement. In this new round of “de-dollarization”, it will become a new standpoint of RMB internationalization. Based on the theory of currency choice and Hansen’s threshold regression model, this paper analyses the impact of macro variables on Sino-Pakistan bilateral trade scale under different cross-border RMB settlement scales. The empirical results show that the scale of cross-border RMB settlement has a significant threshold effect on Sino-Pakistan bilateral trade; when the scale of cross-border RMB settlement is large and the threshold value is crossed, China’s prudent monetary policy and appreciation of RMB/rupee exchange rate will have a positive effect on Sino-Pakistan bilateral trade. At the same time, it will also reduce the speculative behavior of investors using the inflation rate and interest rate difference arbitrage or arbitrage between China and Pakistan to earn the difference. Therefore, more measures should be taken to strengthen the RMB“going out” to Pakistan.

Key words: Cross-border RMB Settlement, Settlement Scale, Sino-Pakistan Bilateral Trade, Threshold Effect

CLC Number:

F822
F752

Liu Wencui, Zuo Ximei. Cross-border RMB Settlement and the Development of Bilateral Trade Between China and Pakistan——Analysis Based on Threshold Effect[J]. Finance & Economics of Xinjiang, 2019, (5): 62-69.

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