Can RMB internationalization mitigate U.S. monetary policy spillovers?

This paper examines the determinants of U.S. monetary policy spillovers on China's interest rates and the buffering effect of RMB internationalization from the perspective of currency internationalization. Empirical results show that U.S. monetary policy heavily impacts China's market rates and short-term rates, with less effect on policy rates and longer-term rates. The significant influence primarily stems from altering in short-term market expectations. RMB internationalization mitigates these shocks by reversing short-term expectations, thereby dampening U.S. monetary policy spillovers and providing a buffer. These insights offer valuable guidance for China in managing the monetary policies shocks from major economy.