Does Internationalization of RMB Facilitate Cross-Border Trade?

Abstract

This study offers the first empirical evidence, using firm-level Korean Customs data, to explore how the internationalization of RMB (IoR) influences cross-border trade with China. We find that product-level exports to China invoiced partially or fully in RMB experience notably faster growth. Additionally, firms utilizing RMB invoicing show faster export growth to China. By employing an instrumental variable approach, we address potential endogeneity concerns and affirm the robustness of our empirical findings. Guided by a currency invoicing model that decomposes the aggregate trade effects into several components, we empirically demonstrate that the increase in trade volume is primarily driven by Chinese importers benefiting from lower currency costs when purchasing RMB-invoiced goods, as opposed to those invoiced in USD.