Geographic spread of currency trading: the renminbi and other EM currencies

BIS Working Papers  |  No 806  | 
27 August 2019


Increasing use of the renminbi outside China by residents of the rest of the world has focused attention on the financial developments that come along with this process. Global use of a currency transforms its money and bond markets, as offshore trading gains weight. When such trading spreads across time zones, so does exchange of the currency against other currencies. How does this diffusion proceed?


When the dollar, Deutsche mark and yen became widely used currencies, no broad surveys of foreign exchange (FX) tracked their diffusion processes. But, in 2013 and 2016, surveys captured trading in the currencies of major emerging market economies (EMEs) in dozens of locations. This study uses these two Triennial Central Bank Surveys of Foreign Exchange and Over-the-Counter (OTC) Derivatives Market Activity to study the geographical diffusion of nascent international currencies.


The study investigates a particular pattern of diffusion. We observe that the geographical distribution of US dollar trading resembles that of the yen, although the two currencies play different roles. We propose that currencies in the process of internationalising converge to the same global distribution. That is, for EME currencies, a lot of trading initially occurs at home and in the nearest big financial centre. Over time, FX trading spreads across the time zones to close the gap between this regional focus and the global distribution. This end-point - an international currency trading everywhere in proportion to other currencies - accords with the key vehicle currency role played by the dollar, particularly in swaps.

We find that the trading of major EME currencies spreads according to this pattern. In particular, the Chinese renminbi, the Mexican peso, the Indian rupee and the Korean won all follow the same pattern. The renminbi shows the fastest diffusion among these. For the renminbi, the Asian centres that had a head start in trading are tending to lose ground to centres in Europe and the Americas.


This paper studies the ongoing diffusion of renminbi trading across the globe, the first such research of an international currency. It analyses the distribution in offshore renminbi trading in 2013 and 2016, using comprehensive data from the Triennial Central Bank Survey of Foreign Exchange and Over-the-Counter Derivatives Market Activity. In 2013, Asian centres favoured by the policy of renminbi internationalisation had big shares in global renminbi trading. In the following three years, renminbi trading seemed to converge to the spatial pattern of all currencies, with a half-life of seven to eight years. The previously most traded emerging market currency, the Mexican peso, shows a similar pattern, although it is converging to the global norm more slowly. Three other major emerging market currencies show a qualitatively similar evolution in the geography of their offshore trading. Overall the renminbi's internationalisation is tracing an arc from the influence of administrative measures to the working of market forces.

JEL codes: C24, F31, F33, G15, G18

Keywords: international currency, FX turnover, renminbi internationalisation, international financial centre