The Conflicting Developments of RMB Internationalization: Contagion Effect and Dynamic Conditional Correlation

As the world’s largest exporter and second-largest importer, China has made exchange rate stability a top priority for its economic growth. With development over decades, however, now holds excess dollar reserves that have suffered huge paper loss because of quantitative easing in United States. In this reality, been provoked into speeding RMB internationalization as strategy to reduce cost get rid excessive dependence on US dollar. Thus, study attempts investigate volatility contagion effect dynamic conditional correlation among four assets, namely China’s onshore (CNY), offshore (CNH), foreign (FER), level (RGI). Considering changes before after “8.11” reform 2015, we separate period two sub-periods. The Diagonal BEKK-GARCH model is employed analysis. results exhibit large GARCH effects relatively low ARCH all periods evidence that, August there was weak them. However, September validates strengthened within CNY CNH, RGI, CNH RGI. weakened between FER CNY,