The Study Of The Systemic Risks In The Currency Markets

Today we are living in an increasingly turbulent world,facing with the once-in-acentury transformation.The Asia Pacific region has been and will keep providing strong impetus to the world economy.With the deepening of regional economic and trade cooperation,China has entered into a new era.Studying the dependence and risk spillover of exchange rate in the region is of great significance to deepen the understanding of the regional currency status of RMB,steadily and cautiously promote the internationalization of RMB,prevent the systematic risk of exchange rate,and promote the stable development of regional economic and financial environment.Based on the dynamic factor Copula model,this paper investigates the dependence structure among currency markets of 11 RCEP original participating countries(including India)over the period from September 20,2010 to February 1,2021.We quantify the systemic risk of the regional currency markets among three dimensions:overall level of systemic risk,systemic importance,and systemic fragility of individual currency.Model allows for the structural break of the August 2015 exchange rate reform.The empirical results show that firstly,after the 8·11 reform,with the introduction of a more market driven RMB/USD central parity quoting mechanism,the increase in the factor loadings of RMB indicates the higher level of overall dependence between the movements of RMB and other currencies in the region.Secondly,the overall level of systemic risk in the regional currency markets is on the rise,and significantly increase at risky events including the Fed rate rise in 2015,the Brexit and the US president election in 2016,China-U.S.trade war in 2018 and the COVID-19 pandemic in 2020.Thirdly,RMB ranked 6th in terms of the systemic importance after the 8·11 reform,indicating a limited impact of RMB on the currencies in the region.Fourthly,the systemic vulnerability of RMB increased significantly after the 8·11 reform,indicating that with the greater exchange rate flexibility,RMB is more exposed to external shocks.