Charting the <scp>RMB</scp>'s Development as a Global Currency Anchor: An Empirical Analysis

ABSTRACT This study adopts a limited two‐step approach to effectively and objectively measure the “currency anchor” effect of the renminbi (RMB) on a global scale from 2005 to 2021. By measuring and comparing the empirical results of the currency anchor reflected by the RMB‐USD, RMB‐reference currency, and the RMB in different regions and economic entities, a panoramic analysis chart of the current development process of the RMB is provided. The research results show that: First, with the monetization of the Exchange Rate (ER), the RMB ER has embarked on a more flexible and independent development path. Second, considering the reverse causality of ER fluctuations, the influence of the reference currency as the RMB's currency anchor has a very restricted scope. This implies that the RMB plays a major role in regional ER linkage. Third, the impact of the US dollar on the global scale remains significant across various regions with the euro mainly concentrated in the European region. Meanwhile, the role of the RMB has become prominent in different regions, with the most significant impact in Central Asia and South America. Fourthly, from the perspective of economic development level, the RMB has the most significant impact on currently developing and middle‐income countries. The study offers a novel contribution to the high quality of China's economy in RMB internationalization and the currency anchor effect of marketization. By analyzing the factors and mechanisms that enhance the contribution of the RMB as a global currency, this study sheds light on the implications for global finance and China's evolving economic position.