The Dynamic Interrelation Between On Shore And Off Shore RMB Exchange Rates

With the continuous deepening promote RMB exchange rate reform and theprocess of internationalization of the RMB, the RMB exchange rate towards a moremarket-oriented direction, which will lead to greater exchange rate risk. The linkagerelationship between different financial markets is the main reason for the financialcrisis spread across different market. And in a long time, RMB on shore exchangerate is being affected by off shore non-deliverable forward market price levels. Theestablishment of CNH can change this situation and improve the domestic market forthe RMB exchange rate pricing in the continuous process of reform of the RMBexchange rate? This article is presented in this context, to explore the linkagebetween on shore and off shore RMB markets, has some theoretical and practicalsignificance.In this paper, the RMB exchange rate against the major on-shore and off shoremarkets is first introduced. Then summarize the principle of linkage betweendifferent RMB markets. By using Granger causality test and binary BEKK-GARCHmodel analyze the dynamic Interrelation among RMB on shore and off shoreMarkets. The following conclusions: there is a close link between the inside andoutside of each RMB market, one market’s price fluctuations will have an impact onother markets through a variety of ways, with the RMB exchange rate reform and theinternationalization of RMB constantly promoting this contact become moreapparent. Before the establishment of CNH, the information flow was mainly fromoutside the territory. However, with the RMB exchange rate reform and the establishment of CNH market, to a certain extent, weaken the influence of themarket on the territory of the RMB NDF market, began a two-way volatilityspillover effects. But the substitution effect between CNH and NDF market is notobvious. Overall, the on shore market exchange rate of RMB is decided by the offshore NDF market expected impact. Based on this conclusion, at last, to furtherpromote the RMB exchange rate reform, and improve the power of on shore marketdeciding the RMB exchange rate giving some suggestions.