Influence Of Hong Kong Offshore RMB Market On China's Foreign Exchange Reserves

In recent years,the continuous deepening of RMB internationalization has promoted the development of the RMB offshore market.The Hong Kong offshore RMB market has become the largest and most representative RMB overseas capital pool and RMB financing market in the world.Over these years,the interest rate and exchange rate differences between the Hong Kong offshore RMB market and the onshore RMB market have enticed extensive arbitrage activities,and may exert a significant impact on China's foreign exchange reserves.The cross-border speculative capital has an indirect impact on the scale of China's foreign exchange reserves through its influence on China's import and export trade,direct investment,interest rate,exchange rate and stock market.At the above background,the development of the RMB offshore market has affected China's foreign exchange reserves to a certain extent.Given this,the research on influence of Hong Kong offshore RMB market on China's foreign exchange reserves plays certain practical significance in ensuring the governments accurately control the scale of foreign exchange reserves,regulate cross-border speculative capital effectively,develop the RMB offshore market steadily and accelerate the process of RMB internationalization.The article analyzes the influence channels of cross-border speculative capital flows on China's foreign exchange reserves.On this basis,using monthly onshore RMB and the Hong Kong offshore RMB data from May 2012 to March 2016 and applying the state space models,the paper tests the influence of the RMB cross-border trade settlement,exchange rates and interest rate differences between offshore and onshore RMB,the amount of RMB direct investment,and the account of RQFII in stock exchanges on China's foreign exchange reserves.We first confirm the impact of the onshore RMB market on Chinese foreign exchange reserves.Importantly,we identify significant influence of offshore RMB market factors on China's foreign reserves and a mitigating effect of offshore RMB market factors on the onshore market factor.This paper also analyzes the influence of the development of the offshore market on Russia's foreign exchange reserves.We can find that capital flights and reflow of capital have a huge impact on Russia's foreign exchange reserves and then the Russian government has issued a series of measures,which provide reference and enlightenment for the development of RMB offshore market.Accordingly,in order to avoid the negative impact of arbitrage activities on China's foreign exchange reserves,this paper put forward the corresponding policy recommendations.