The Dynamic Interrelation Among RMB On-shore And Off-shore Market

The internationalisation of the RMB is the way to China’s exchange rate mechanism reform, many scholars and investors are increasingly concerned about it. Relevant government agencies in the process of reform in China, published and implemented a series of policies to help internationalise, construction of offshore RMB market became one of the important direction of the reform of the RMB exchange rate mechanism. After the establishment of offshore RMB market in Hong Kong in 2010, its offshore RMB business in the areas of cross-border trade settlement, bond developed rapidly, daily trading volume since the 2012 (including spot and forward transactions) has reached 5 billion US dollars, Hong Kong offshore RMB market has become the main financial support for Yuan trade settlement platform.In spite of currency-internationalization impetus force of developed off-shore currency market, it can’t be ignored that high risks are potential during the development of off-shore market. On one hand, the off-shore exchange rate will influence the executive effect of central bank policy due to different formation mechanism between onshore and offshore RMB exchange rate, On the other hand, with the improvement of depth and width for RMB markets, it will expansion for offshore financial balance of commercial banks.As representatives of the offshore RMB market, what influence did offshore RMB market in Hong Kong to the other exchange market will exist in the territory of impact? With this problem, we will study the interrelationship between the different stages of the RMB exchange rate and the flow of information, and analyze the changes taking place in these relations.Firstly we introduce the differences of RMB exchange market, then study onshore RMB spot exchange rate market (CNY), and Hong Kong’s offshore RMB spot exchange rate market (CNH) and Hong Kong’s offshore RMB forward exchange rate market (NDF) as research object, using VAR model, and Granger causal test reveals of long-term relationship of different RMB exchange market, and using pulse response function and variance decomposition to describe short-term effects,and we get linear relation of these market. Then followed by Hong (2009), it reveals different fluctuations spillovers in the serval exchange markets,ultimately we look for pricing and fluctuation center of the RMB exchange market by mean and volatility spillover.This article drow the following conclusions, the foreign exchange market less affected in the first period, foreign exchange significant impact on domestic markets, pricing and fluctuations center are absolutely in CNY, CNY is Granger causes of both CNH and NDF, pulse response function and variance decomposition analysis displayed CNY on CNH and NDF exists shock effects and larger of variance contribution rate, description territory that period CNY has one-way value information overflow and fluctuations rate information overflow on CNH and NDF. Secondly, as Hong Kong’s offshore market price mechanisms are introduced, the second stage in offshore RMB market in Hong Kong gradually replaced during Exchange market pricing and information, CNY and NDF are Granger cause each other, one-way Granger cause is CNH to CNY, CNY is not Granger cause of CNH and volatility of information overflow examination fluctuations in offshore RMB market in Hong Kong is the information center. Empirical results show that Hong Kong offshore RMB market to domestic RMB exchange rate markets is increasing, which are important to China’s RMB exchange rate reform.