The Interest Rate Linkage Between Offshore RMB Market In Hong Kong And Onshore Market

The progress of RMB internationalization gradually accelerated because the launch of the RMB settlement of cross-border trade pilot since 2009, as the bridgehead of RMB internationalization, the development of offshore RMB market in Hong Kong has also made remarkable achievements, especially the offshore RMB deposit and lending markets. By the end of 2014, the offshore RMB funds pool size in Hong Kong more than 1 trillion yuan, becoming the largest offshore RMB financial center. In June 2013, the Hong Kong Treasury Markets Association announced the Hong Kong interbank offered rate, as the offshore RMB loans and interest rate contracts and other financial products pricing reference, marking the offshore RMB benchmark interest rate of the market in Hong Kong officially formed.This paper starts from the current situation of the development of the offshore RMB market in Hong Kong, the combination of qualitative analysis and quantitative analysis, with a focus on the channels that between the RMB offshore market and onshore market and empirical analysis, the interest rate linkage between the offshore and onshore market are discussed in-depth analysis.First of all, the paper sort out the relevant literature that the RMB offshore market development and the linkage between the offshore market and onshore market, scholars have found that with the gradual opening of China’s capital account and the rapid development of the RMB offshore market in Hong Kong, the linkage between the RMB offshore market and onshore market is growing. Secondly, describe the development of the RMB offshore market in Hong Kong and the offshore RMB money market, bond market and stock market, the study found that the RMB offshore market of RMB business is growing, laid the realistic foundation for the linkage of interest rate between the RMB offshore market in Hong Kong and onshore market. Thirdly, analysis the linkage channels between the RMB offshore market in Hong Kong and onshore market, the study found that the RMB flows mainly through the RMB settlement of cross-border trade, direct investment, financial market investment, currency swaps and other contact channels. Fourthly, analysis the rate formation mechanism of the RMB offshore market in Hong Kong, found the rate formation mechanism is different from the rate in the onshore market formation mechanism. There are two kinds of RMB interest rate in two markets, the arbitrage between the offshore market and onshore market have occured frequently, laid the theoretical foundation for the linkage of interest rate between the RMB offshore market in Hong Kong and onshore market. Fifthly, by making use of Granger causality test and VAR model for empirical research on RMB interbank offered rate in Hong Kong and the Shanghai interbank offered rate, the results of the study show that during the overnight period, the onshore market is not in the status of price information center, the offshore market have certain influence on the onshore market; In one week, two weeks, one month, three months and six months periods, the onshore market play the absolute price information center role. Finally, according to the empirical results, a summary of the full text, and proposed to continue to improve the SHIBOR system, the monetary policy should change from the total model to price model, accelerate the development of the RMB offshore market in Hong Kong and strengthen the supervision of RMB the offshore market in Hong Kong.