Research On The Interaction Between Hong Kong RMB Offshore Market And The Onshore Market

Along with the continuous acceleration of RMB internationalization in recent years,the development of the RMB offshore market and the reform of domestic financial system have achieved fruitful results.Since the RMB settlement of cross-border trade started in 2009,Hong Kong RMB offshore market has been developing rapidly,and for now it has become the world's largest RMB offshore market.Its market structure,product system and financial infrastructure have improved at all levels,and the offshore RMB fund pool continues expansion.The market-oriented reform of interest rate and exchange rate in mainland China are steadily promoting.These policies,such as RMB-ODI,RMB-FDI,RQDII and RQFII,accelerate the opening speed of RMB capital account.At this stage,flow channels of RMB between offshore market and onshore market continue expanding,cross-border arbitrage activities tend to be more active,the correlation both in interest rate and exchange rate between Hong Kong RMB offshore market and the onshore market becomes more obvious.These phenomena show that interaction between the two markets has become increasingly close.Based on the reality mentioned above,this paper first teases out cross-border RMB flow and cross-border arbitrage mechanism between the two markets,analyzes its defects and influence.After that,this paper sorts out both interest rate and exchange rate's interaction between the two markets,especially explains the impact of interest rate and exchange rate's market-oriented reform on such interaction,and then puts forward countermeasures and suggestions,hoping to make some contributions to optimizing interaction between the two markets in the future.This paper adopts research methods of the combination of theory and practice,the combination of normative analysis and empirical analysis.Firstly,elaborating the interaction between two markets from the perspective of interest rate parity,the News Model and the Rational Speculative Bubbles Model.Secondly,summarizing Hong Kong RMB offshore market's development,cross-border RMB flow and cross-border arbitrage mechanism.Thirdly,using the latest data,applying the Grainger causality test,impulse response function and variance decomposition based on VAR model to empirically test the interaction between two markets.Finally,based on a general review of the above points,making corresponding suggestions to optimize the interaction between two markets.There are two main conclusions of this paper.First,this paper divides RMB flow mechanism into three parts:RMB two-way flow mechanism,onshore RMB one-way outflow mechanism and offshore RMB one-way backflow mechanism,and summarizes three major arbitrage models:RMB trade settlement arbitrage,RMB trade financing arbitrage and offshore RMB bond arbitrage.Second,the empirical results of this paper show that along with the promotion of interest rate and exchange rate's market-oriented reform,onshore market gradually transferred the price-center position to Hong Kong offshore market.Before the interest rate's market-oriented reform basically completed,mainly onshore interest rates guide offshore interest rates;after the reform,two-way guidance relationship becomes obvious,and the reform will help to strengthen the return spillover effect of offshore interest rates on onshore interest rates.In the early stage of the exchange rate's market-oriented reform,CNY spot rate one-way directs CNH spot rate;with the gradual progress of the reform,the guiding function of CNH spot rate on CNY spot rate is gradually strengthened.Due to lack of classical papers on the research of interaction between the two markets,this paper may have some certain defects on the research depth.On the other hand,data used in empirical research has been limited,resulting in test results may exist certain deviation.