{"title":"SDR adjustment and FX liquidity","authors":"Yu-Lun Chen , J. Jimmy Yang","doi":"10.1016/j.pacfin.2025.102711","DOIUrl":null,"url":null,"abstract":"<div><div>The inclusion of Chinese renminbi in the Special Drawing Rights (SDR) lowers weightings of the other SDR currencies (EUR, JPY, and GBP) in the basket. Conventional wisdom suggests no material impact on those currencies. However, we find that, after the SDR adjustment, the liquidity of down-weighted currencies declines significantly. The SDR adjustment increases the FX liquidity commonality and enhances the liquidity spillover and risk transmission from EUR, JPY, and GBP to other world currencies. We identify major determinants of FX liquidity and highlight important policy implications.</div></div>","PeriodicalId":48074,"journal":{"name":"Pacific-Basin Finance Journal","volume":"91 ","pages":"Article 102711"},"PeriodicalIF":4.8000,"publicationDate":"2025-02-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Pacific-Basin Finance Journal","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0927538X25000484","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
The inclusion of Chinese renminbi in the Special Drawing Rights (SDR) lowers weightings of the other SDR currencies (EUR, JPY, and GBP) in the basket. Conventional wisdom suggests no material impact on those currencies. However, we find that, after the SDR adjustment, the liquidity of down-weighted currencies declines significantly. The SDR adjustment increases the FX liquidity commonality and enhances the liquidity spillover and risk transmission from EUR, JPY, and GBP to other world currencies. We identify major determinants of FX liquidity and highlight important policy implications.
期刊介绍：
The Pacific-Basin Finance Journal is aimed at providing a specialized forum for the publication of academic research on capital markets of the Asia-Pacific countries. Primary emphasis will be placed on the highest quality empirical and theoretical research in the following areas: • Market Micro-structure; • Investment and Portfolio Management; • Theories of Market Equilibrium; • Valuation of Financial and Real Assets; • Behavior of Asset Prices in Financial Sectors; • Normative Theory of Financial Management; • Capital Markets of Development; • Market Mechanisms.
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