The Influence Of Hong Kong RMB Offshore Market To Domestic Financial Market

The overall economic strength of China rapidly increases after the reform and opening policies. In the last thirty years, China establish a close relationship with the other countries by increasing the level of opening which leads to the increasing demand of RMB in the international capital market. The RMB offshore center is doomed to be builded. However it’s not time to establish RMB offshore market in the domestic before opening the capital account. Favorable geographical location and the developed financial markets will make Hong Kong a perfect RMB offshore market. In the national12th five-year plan, it clearly puts forward to support Hong Kong to be a RMB offshore center. In Hong Kong RMB offshore market it will form a market-oriented interest rate and exchange rate of RMB which makes a reference for the domestic financial reform and macroeconomic policy and promote the internationalization of the RMB. It’s also a challenge to the domestic monetary policy. Therefore this paper mainly analyses the affluence of Hong Kong RMB offshore market to the domestic financial market by studying formation mechanism of interest rate and exchange rate. This paper uses the RMB deposit in Hong Kong and money supply of the central people’s bank to establish a VAR model in order to measurement the impulse response from RMB deposit in Hong Kong to domestic money supply.First part in this paper is about the background of build Hong Kong RMB offshore market. As we know a severe financial crisis hits America and Europe in2008which lead to the devaluation of the dollar and the euro. Since China holds a large number of foreign exchange reserves, now we face the risk of devaluation loss. Global reserve asset is also in an urgent need to find a stable currency. All these factors will promote the internationalization of RMB. Then thepaper reviews and summarizes the related research at home and abroad, demonstrates the structure and the research content indicate the innovations and shortcomings.In the next part the article summarizes the development process of the foreign offshore financial market from1950s. Since there are different characteristics and changes in form in different historical periods, the definition of offshore financial market is different. The third part expounds the present situation of the development of Hong Kong RMB offshore market. The establishment of Hong Kong RMB offshore market has very important significance both in mainland and Hong Kong. There are also advantages of many aspects. Since RMB business was carried out in Hong Kong in2004, RMB deposit, RMB bonds and other related business have got a large growth.The fourth part and fifth part will analyze the affluence of Hong Kong RMB offshore market to the domestic financial market by studying formation mechanism of interest rate and exchange rate. Because offshore financial usually take flexible management policies, the offshore market operating costs lower than onshore. There will be a interest rate gap which lead to arbitrage activity and weaken the policy effectiveness. At present China practices a managed floating exchange rate regime and RMB exchange rate has remained relatively stable. However the exchange rate in Hong Kong may fluctuate and influence the trend of the domestic RMB exchange rate.The construction of the RMB offshore market will promote the domestic financial regime reform, gradually open the capital account, the influence on the offshore RMB exchange rate formation way, which requires the monetary authorities when it makes policy, requires careful consideration, to avoid the crisis.Then the sixth part analyzes the impact from RMB deposit in Hong Kong to money supply. The empirical analysis of RMB Hong Kongoffshore market influence on monetary policy, by choosing the recently decade of RMB Hong Kongdeposit and broad money data issued by the people’s bank of China, to establish the VAR model, analysis of RMB Hong Kongoffshore market impulse response of money supply.In the last part this article systematically expounds the potential problems and risks, puts forward measures to solve the problems and proposes some suggestions.