The Impact Of Hong Kong RMB Offshore Market Development On Domestic Monetary Policy

In1950’s, the offshore financial market firstly appeared in London, it provided a new form of financial markets, accelerating the financial liberalization of the counries and regions in Europe, and bringing economic prosperity. Then expanded to all over the world, and promoted the process of global economic integration. With the development of China’s economic and the RMB international status’s elevation, It’s very important to establish and develop the RMB offshore financial markets.However, As a new form of financial innovation,international experience shows that the development of offshore financial markets may impact the monetary policy of the country. In particular, in recent years, with the continuous expansion of Hong Kong’s offshore RMB market, as well as the offshore RMB back channel gradually liberalized, the link of the two markets become more closely,but the interest rate, the exchange rate is between the two market.with the development of Hong Kong’s offshore RMB market will cause arbitrage between the offshore market and the onshore market, To some extent, arbitrage funds can be actively to the market t but when the arbitrage funds too large,it might impact the money supply of domestic market, weaken the effectiveness of monetary policy.In this paper, Fist we theoretically analyze the impact of the offshore RMB’s markets to domestic monetary policy, and found that with the development of offoreshore RMB’s markets, It will impact the domestic’s money supplyment, interest rates and exchange rates, and then affecting the effectiveness of domestic monetary policy. Second, We analyze the impact of offoreshore RMB’s markets to domestic monetary policy through the VAR model. The empirical results shows that the influence of Hong Kong’s offshore RMB market to domestic monetary policy has emerged,but the overall impact was very small in this stage.