Redback Rising: China's Bilateral Swap Agreements and Renminbi Internationalization

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Date: Sept. 2015
From: International Studies Quarterly(Vol. 59, Issue 3)
Publisher: Wiley Subscription Services, Inc.
Document Type: Report
Length: 279 words

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Abstract :

Byline: Steven Liao, Daniel McDowell For several years now, China has implemented policies to promote the international use of its national currency, the Renminbi (RMB). As part of these efforts, the People's Bank of China (PBC) has negotiated 25 bilateral currency swap agreements (BSAs) with foreign central banks. These make it easier for firms in both China and its partner countries to settle cross-border trade and direct investment in RMB. We seek to explain why China and these countries cooperate via BSAs. We theorize that trade and direct investment interdependence relate to dyadic BSA cooperation via two mechanisms: financing insulation from international liquidity shocks and reduced transaction costs of cross-border exchange for local firms. Additionally, we expect the presence of preferential trade agreements (PTAs) and bilateral investment treaties (BITs) will increase the probability of dyadic BSA cooperation. BSAs are natural extensions of these existing agreements. They represent an additional layer of state-level formal cooperation that further reduces barriers to cross-border trade and direct investment. Our empirical analysis finds that both de facto trade interdependence and de jure economic integration via PTAs and BITs increase the probability of BSA cooperation between China and partners. Article Note: Authors' notes: Earlier versions of this study were presented at the Midwest Political Science Association annual conference, Chicago, Illinois, April 2012 and the International Studies Association annual meeting in San Francisco, California, April 2013. We would like to thank Jerry Cohen, Tom Pepinsky, Brenton Peterson, the anonymous reviewers, the ISQ editors, and seminar participants at the University of Virginia for helpful comments. We would also like to thank the University of Virginia Society of Fellows for research support. Replication materials are available at

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Gale Document Number: GALE|A427486708