Is China an optimum currency area?

This paper analyzes regional differences across Chinese regions, employing an optimum currency area framework. Empirically, we consider the cross-sectional correlation measure of Solnik and Roulet [Solnik, B., & Roulet, J. (2000). Dispersion as cross-sectional correlation. Financial Analysts Journal, 56, 54-61.] when examining data on GDP, trade, inflation and regional budget between 1991 and 2001. Our preliminary results suggest that China probably is more of an optimum currency area than first expected. It is debatable, though, whether Hong Kong and Macao are appropriate as candidates. The results also indicate that there might be other constellations of regions that could be closer to an optimum currency area than the current Yuan area.