Research On The Dynamic Relationship Between Onshore And Offshore RMB Exchange Rate By

At present, China is pushing forward the process of internationalization of theRMB as well as financial market reform, and the development of Hong Kong’soffshore RMB market is one of the measures that contribute to the implementation ofRMB internationalization strategy. In promoting Hong Kong’s offshore RMB marketdevelopment, research on the dynamic relationship between onshore and offshoreRMB exchange rate and real-time monitoring offshore RMB market price shocks onthe domestic market has great theoretical and practical significance on the stabilityand development of RMB market, promotion of exchange rate market-orientedreforms in an orderly way and mastery of the RMB exchange rate pricing power.This paper includes the Hong Kong offshore RMB spot market within the studyarea. Based on the works of scholars in the past, this paper does further research inthe following two aspects: Firstly, from the perspective of return spillovers, it’s toexplore which markets master the RMB exchange rate pricing power and influenceother markers pricing, being in the center of RMB exchange rate information.Secondly, from the perspective of volatility spillover, it’s to analyze the impact ofprice fluctuations among different RMB markets.In view of the above research, based on foreign exchange rate dynamicsrelevance theory and foreign exchange market microstructure, this paper makes anempirical study on the dynamic relationship among CNY, CNYDF, CNH and NDF byGranger causality test, impulse-response function and MGARCH-BEKK model. Theempirical results show that from the perspective of return spillover, the onshore spotmarket has returns spillover effect on both CNY and NDF, which indicate that theonshore spot market has the RMB exchange rate pricing power and hence is at thecenter of the RMB exchange rate information. Meanwhile, the CNYDF rates stillrefer to overseas market price. From the perspective of volatility spillover, CNHhas volatility spillover effect on the onshore spot market.Based on empirical results, this paper argues that on the one hand, in theprocess of domestic foreign exchange rate market-oriented reform, financialregulatory authority should effectively prevent the impact of price fluctuations onthe onshore RMB markets from overseas. On the other hand, it should accelerate thedevelopment of domestic foreign exchange derivatives market, help them to manipulate their own pricing power and implement the function of avoiding foreignexchange risk and realizing the preservation and appreciation of capital.