Reaeach On The Mechanism Of RMB-Against-Dong Exchange Rate Pricing

Along with the development of economic and trade cooperation between China and Vietnam, the cross-border settlement both of RMB and Vietnamese Dong enjoys a fast growing momentum. However, as RMB and Dong are both non-convertible currencies, the exchange between them lack a mechanism that officially gives the direct exchange rate pricing. At the same time, there are "Street Banks" along the national border in Guangxi and Yunnan Province that largely affect the pricing of exchange rate of RMB against Dong, which increases the cost burden for enterprises and investors in two countries as well as the risk of foreign exchange exposure. In order to reduce the cost of trade and the risk of exchange rate and promote the healthy development of bilateral economic and trade and financial cooperation, this paper will research the mechanism of RMB-against-Dong exchange rate pricing from the aspect of influencing factors in details.This paper will firstly take the classical exchange rate determination theory as the theoretical base and introduce how USD exchange rate influences RMB and Vietnamese Dong. Then, with a comprehensive survey on the current situation of RMB/Dong exchange rate pricing on the China-Vietnam border, the article further builds the VAR model that includes endogenous variables like China-Vietnam inflation differentials, Guangxi-Vietnam interest margin, Guangxi-Vietnam net export differences, in order to empirically study the mechanism of RMB/Dong exchange rate pricing. The study finds out that China-Vietnam inflation differentials, China-Vietnam interest margin and Guangxi-Vietnam net export differences have deciding impacts on RMB/Dong exchange rate pricing, and the RMB/Dong exchange rate VAR model has good fitting effect. Based on the empirical analysis, the paper holds the point that the mechanism of RMB-against-Dong exchange rate pricing should take exchange rate determination factors between the two countries as its directly pricing foundation, and the China-Vietnam inflation differentials, China-Vietnam interest margin and Guangxi-Vietnam net export differences can be considered as its selective factors. As for improving the mechanism of RMB-against-Dong exchange rate pricing, this paper finally proposes suggestions that including need to strengthen the financial institutions in the pricing initiative, pay attention to the changes in the China-Vietnam inflation differentials, China-Vietnam interest margin and Guangxi-Vietnam net export differences, and cultivate the market main body status of the state-owned Banks.