Interdisciplinary Studies On The Factors Of Onshore Financial Market And Cultural Soft Power In The Development Of London RMB Offshore Market

The study on London RMB offshore market is sifnificantly valuableto China's opening up to the world and the internationalization of Chinese currency and important for further supplementing and improving the current RMB offshore market theories.It has practical value for speeding up the construction of the RMB offshore market system.Firstly,this study analyzes the background and development of the RMB offshore market in London in a relatively all-around and detailed way.It makes a comprehensive comparsion of the distinction and relations between the internationalization course of dollar and Chinese yuan,RMB offshore markets of Hong Kong,Singapore and London,and indicates what is special and necessary in the establishment and development of RMB offshore market in London.Based on the theories of Keynes Money Demand,International Monetary Theory,RMB Internationalization and Cultural Soft Power,the study tries to answer the following questions:(1)the influence of building London RMB offshore market on domestic financial market;(2)the relations between London RMB offshore market and domestic financial market;(3)the influence of cultural soft power on the development of London RMB offshore market;and(4)the risk expectation and prevention of London RMB offshore market.This research develops the following four conceptual models and testifies them with statisticaldata:(1)model for the effect of London RMB offshore market on domestic financial and monetary policy and their interaction;(2)model for the interaction between London RMB offshore market and exchange rate linkage mechanism of domestic onshore market;(3)model for determinants of exchange rate of London RMB offshore market;(4)model for the culturalsoft power factors in the RMB bonds trading volume at London Stock Exchange.The data for the model verification include:(1)monthly data of London RMB deposit(HRD)to measure the development scale of London RMB offshore market,China's M2 monthly data of the same period for the market scale of our currency to observe London RMB offshore market's influence on our monetary policy;(2)the spot rate of CNY against USD in domestic CNY exchange rate market,the closing price of the spot rate of CNH against USD in overseas market and the closing price of RMB against USD per trading day standing for trading data of the NDF market for CNH to investigate the exchange rate linkage mechanisms for London RMB offshore and onshore markets and their influence;As of the spot exchange rate of offshore RMB in London,the study selects four factors:(i)the central parity rate set by People's Back of China,(ii)CNY NDF price,(iii)interbank interest rates of CNH and USD indicators to test different indicators respectively,and(iv)CNH swap point,interbank interest rates,CNY spot and CNY NDF as the most important factors for forward rate analysis of offshore RMB;(3)the five cultural soft power variables of international cultural trade and service,international tourism competitiveness,international education competitiviess,cultural impact power and Chinese language and culture communication power,and data of RMB bonds trading volume in London Stock Exchange between 2005 and 2015 to analyze soft power effecton London RMB offshore market.EVIEWS software is adopted to conduct VAR analysis,and ADF test,Granger causality test,Johensen co-integration test,impulse test and variance decomposition to test the conformity of variables and models with economic significance.The study yields the following four findings:(1)London RMB offshore market has substantial impacts on the implementation of domestic monetary policies.The influence of RMB offshore market development on China currency supply is negative,which will spill over into the transmission mechanism for onshore monetary policies,unconducive to the targeted implementing of related policies.London RMB offshore market,still in its early stage,is much smaller in scale than other offshore counterparts.Therefore,it exerts little impacts on domestic onshore currency supply.Its shock to mainland China's finance market is under goodcontrol.However,monitoring the offshore RMB flow is increasingly difficult because offshore RMB will affect onshore monetary policies in a more complex manner.Risks also continue to grow,as the market scale and dimension expand with the process of RMB internationalization and the increasingly opening capital accounts,and the booming of offshore RMB business and offshore finance market.(2)London RMB offshore market and the onshore Chinese financial market are complicatedly inter-connected.For domestic monetary policies,the early stage and small scale of this market little affect our onshore RMB supply,and the supply volume poses a weak negative shock to RMB offshore market.There exists a mutual influence on the spot prices of London RMB offshore and onshore markets.Guided by the forward exchange rate in the trend of onshore RMB spot rate,the offshore spot rate remains a basically consistent with the changing trend of the onshore spot rate,but in a fluctuating way.The two figures are inlong-term balance and the offshore spot rate has long-term positive impact on the onshore one.At the same time,onshore finance market can have very decisive function on London RMB offshore market in that policies of the former can affect the growth of the latter.This market can set the price for London RMB offshore market and the onshore and offshore finance markets can supplement each other in function.(3)Cultural soft power factors affect London offshore RMB market,specifically manifested in their positive impacts on the turnover of Chinese company bonds in the London Stock Exchange.The study shows that the regression coefficient of the overall influence of soft power is distinctly positive,withall the ten indicators positively influencing this offshore market(R2?0.22).Among all the indicators,the impact of country image index,total population of international students in China and the total number of the Confucius Institutes is more prominent(R2?0.27).(4)The construction of London RMB offshore market face various potential risks,such as policy distortion,market risk expectation,speculation and arbitrage triggered by offshore and onshore RMB price system differtence,short-term cross-border RMB flow,incomplete law system,the net outflow of RMB capital pool,incomplete RMB offshore finance system,and unstable British economy.In terms of theoretical contribution,this dissertation raised two important and new ideas about offshore financial market studies in China.The first is that the RMB offshore market in London is still in its infancy,showinga mutual linkage between RMB offshore and onshore markets.Secondly,cultural soft power affects the growth of RMB offshore market in London.Therefore,it is my argument that hard financial and soft culture power need to be enhanced together in the offshore market development.In terms of practical contribution,this study hightlights the unique advantages and problems in the progress of London RMB offshore market.In a combination of the RMB offshore market development,the internationalization of RMB,and China's financial system reform,the research proposes such measures and strategies as building of finance supervision system,risk prevention and improvements of law and enhancement of cultural soft power.Possible solutions to better London RMB offshore market are proposed for deepening the China's financial system reform.Due to the short history of London RMB offshore market,insufficient data and information disclosure,and the limited samples,it is hard for this study to conduct accurate data analysis.There is a need for future in-depth study of cross-border arbitrage of London offshore financial market,and the interaction between onshore and offshore markets.Also,indicators of cultural power can be increased for impact analysis.