A country's rise to economic dominance tends to be accompanied by its currency becoming a reference point, with other currencies tracking it implicitly or explicitly. For a sample comprising emerging market economies, we show that in the last two years, the renminbi (RMB) has increasingly become a reference currency which we define as one which exhibits a high degree of co-movement (CMC) with other currencies. In East Asia, there is already a RMB bloc, because the RMB has become the dominant reference currency, eclipsing the dollar, which is a historic development. In this region, 7 currencies out of 10 co-move more closely with the RMB than with the dollar, with the average value of the CMC relative to the RMB being 40 percent greater than that for the dollar. We find that co-movements with a reference currency, especially for the RMB, are associated with trade integration. We draw some lessons for the prospects for the RMB bloc to move beyond Asia based on a comparison of the RMB's situation today and that of the Japanese yen in the early 1990s. If trade were the sole driver, a more global RMB bloc could emerge by the mid-2030s but complementary reforms of the financial and external sector could considerably expedite the process.

Eoin Treacy's view The value of the Renminbi, particularly against the US Dollar remains a highly contentious subject. The fact that it appreciated so steadily in the last month of campaigning for the US presidential election is no coincidence and it is noteworthy that it was not a main topic of debate during the campaign despite earlier anti-China rhetoric.

The Renminbi completely reversed its first decline in a decade from mid-September to hit a new recovery peak. While it has paused in the region of CNY6.25, a clear upward dynamic would be required to question the current strengthening bias.

China has assumed such a dominant economic position regionally that how the Renminbi performs has a significant bearing on the prospects for neighbouring currencies. A number have been hitting new highs over the last month. The Asia Dollar Index has trended back to test the upper side of its yearlong range and has paused mostly below 118. It will need to sustain a move above that area to confirm a return to medium-term demand dominance.