Research On The RMB Exchange Rate Interaction Between Onshore And Offshore Market

With the development of RMB international, the RMB offshore markets are enjoying its rapid pace. Hong Kong is becoming a typical as a relatively mature RMB offshore market, has formed a set of its own market-oriented mechanism of interest rate and exchange rate. A variety of products related to the RMB interest rate and exchange rate, to a certain extent, are affecting the development of the domestic market, the exchange rates interaction between the two market are more closely. Since the second half of 2011, renminbi exchange rate differences between the Hong Kong (CNH) and the mainland (CNY) has shrinking, especially since 2013, the renminbi derivatives has been developing rapidly, the development of the offshore RMB market is gradually matured, the guiding mechanism of onshore and offshore renminbi market has become more complex, therefore, it is needed to study the interaction mechanism between the onshore and offshore market, to be aware of the development direction of these two markets. This paper combines qualitative and quantitative methods, analyzes the interaction of exchange rate between onshore and offshore market.First, the paper analysis the outflow and backflow mechanism of RMB at the macro level, then study the exchange rate formation mechanism of the onshore and offshore market at the micro level, and using a measuring method, conducts a causality test of guiding relation between the exchange rate in two markets, including spot rate and forward rate. It is concluded that the leading relationship between CNH market and CNY market is interactive in spot market, and in forward market, CNY plays a guiding role, this is mainly due to the expectation, which is expected to be waning in forward market, thus the financial products pricing power will eventually return to the domestic market, while in spot market, the influence of expectation is grate, making the domestic market be impact. In the end, the paper gives the corresponding suggestions on the coordinate development of the onshore and offshore market, combing the research conclusion, for example, to further improve the interest rate and exchange rate formation mechanism of onshore and offshore market, to increase the renminbi liquidity of the offshore market, to facilitate the construction of RMB backflow mechanism and outside circulation mechanism, to improve the cross-border RMB settlement mechanism, and to strengthen the cooperation between the offshore markets etc.