The Impact Of Factor Analysis On RMB Substituting For HK Dollar

It has been more than30years since China’s reform and opening-up begun.With the sustained rapid development of economic, the deepen reform of financialsystem，gradually liberalize of capital control，a significant increase in the degree ofintegration of the world economy，the RMB cross-border flows have been expanding.The residents of the neighboring countries or regions in China have gradually acceptRMB as a trading currency, reserve currency and international liquidation means,especially in Southeast Asia, RMB has almost played with the functions of theinternational monetary. RMB substituting for currencies of neighboring countries orregions has been more and more widely, while the phenomenon of RMB substitutingfor HK dollar is particularly evident in Hong Kong, and in recent years thisphenomenon has gradually deepened. RMB substitutes for the currencies ofneighboring countries or regions and it naturally moves towards regionalization. Theresearch about impact factor of RMB substituting for HK dollar has certain referentialsignificance for the regionalization of RMB.When it comes to currency substitution, many foreign scholars mostly discussedsubstitution of international currency to the currencies of developing countries and thecurrency substitution between developed countries. And they stressed the negativeimpact more on economy in both developing countries and developed countries.Chinese scholars’ research on currency substitution is also reflected in the substitutionof international currency to RMB.The research on RMB substituting for thecurrencies of neighboring countries or regions is less. Today, the RMB is rathercompetitive within the region. The trend of the foreign currency substituting RMB isgradually diminishing, but the trend of RMB substituting currencies of neighboringcountries or regions is gradually enhanced. The circulating of RMB outside is mainlyconcentrated in the regions of Hong Kong, the RMB in Hong Kong account for themajority of the offshore circulation of RMB. Therefore the phenomenon of RMBsubstituting Hong Kong dollar is worthy to study.Based on the above analysis, the paper first precedes from the perspective of thecurrency substitution theory, and analysis the factors that affect currency substitution,and introduce the research literature of relevant scholars. Hong Kong’s HK dollar andRMB demand function then were constructed, which derived the equation model ofinfluencing factors on RMB substituting for HK dollar, based on the empiricalanalysis. The results show that: the nominal exchange rate, staff size, trade between HK and mainland, and network externalities of RMB are important factors from eitherlong-term or short-term point of view; the real interest rate differential, Mainland’seconomic strength has only long-term effects, the short-term effects are not significant.Finally, I hope this article could provide some possible policy recommendations onRMB gradually replacing the currencies of neighboring countries or regions andultimately achieving regionalization.