The Conduction Effect Of The Onshore RMB Exchange Rate And The Offshore RMB Exchange Rate

In recent years,the spread of the offshore RMB exchange rate and the onshore RMB exchange rate in Hong Kong has become a widespread concern of scholars and the government.The marketization trend of the RMB exchange rate has become more apparent.The correlation between the onshore and offshore RMB exchange rate has become stronger,and the linkage relationship has shown a different trend from that before the exchange reform.In 2018,the offshore and onshore exchange rates had a similar trend.At the same time,the offshore market and the onshore market are indispensable in the internationalization of the RMB.Studying the offshore market and the onshore market RMB exchange rate has great significance for the internationalization of the RMB,and the linkage relationship between them is also a hot issue concerned by many researchers.Studying the transmission mechanism of them is conducive to grasping the complex relationship between the two markets,providing research significance for the formulation of the correct RMB exchange rate mechanism,and providing a theoretical basis for possible problems during the process of the internationalization of the RMB.On the shore,the RMB exchange rate formation mechanism has developed for a long time.From 1953 to 1973,China implemented a single fixed exchange rate.From 1973 to 1981,China implemented a floating exchange rate calculated according to a basket of currencies.From 1981 to 1994,China implemented a double exchange rate system.After experiencing the exchange reform in 1994,2005,2010 and 2015,China has gradually established a floating exchange rate system.Different from the system used before,this system takes the market supply and demand into consideration.At the same time,the middle price fluctuates based on the change of the closing price and a basket of currency exchange rates.The "counter-cyclic factor" was introduced in the RMB mid-price quotation mechanism in 2017 to buffer the procyclicality of the foreign exchange market.The development of the offshore RMB market is relatively short.The offshore RMB market mainly includes the non-deliverable RMB forward exchange market generated in Singapore in June 1996 and the offshore RMB established on August 23,2010.The offshore RMB market in London,Europe and Southeast Asia have also developed better in recent years.The RMB foreign exchange products in the offshore RMB market are similar to the onshore market.Foreign exchange swaps,spot and forward are the main trading varieties in the offshore RMB foreign exchange market.According to the Bank for International Settlements,in 2016 the average daily transaction volume of offshore RMB foreign exchange swaps was US$40.45 billion,accounting for36%,the average daily transaction volume of offshore RMB foreign exchange spots was US$28.591 billion,accounting for 25%,the average daily transaction volume of offshore RMB foreign exchange of forward was US$19.71 billion,accounting for 17%,and the average daily transaction volume of NDF was US$10.359 billion,accounting for 9%.The analysis logic of this paper is an association of theory and empirical analysis.After reviewing the literature and introducing the formation history of the offshore and onshore markets of the RMB and analyzing of the status quo of the interaction between the two markets,the mechanism of mutual influence on the offshore market is obtained.Based on theoretical analysis,the empirical research uses the relevant data for quantitative analysis,to verify the conclusions of theoretical analysis,and provide a basis for the final conclusions and recommendations.The empirical part is split into several different parts according to the time points that have a significant impact on the RMB exchange rate.The CNH market was established on August 17,2010,and exchange rate reform in 2015 was on July 21,2005,the exchange reform was restarted on June 21,2010 and the 2015 exchange reform was on August 11,2015.Therefore,the empirical analysis was divided into four time periods,concluding some basic analysis and Granger causality test,the GARCH model,the VAR model.The last time period also has the impulse response and variance decomposition analysis.Through theoretical and empirical research,this paper draws the conclusion that before the exchange reform in 2015,the onshore RMB exchange rate has a strong guiding effect on the offshore RMB exchange rate and Hong Kong's offshore RMB has a stronger guiding effect on the onshore RMB exchange rate.After the exchange reform in 2015,the offshore RMB exchange rate and the long-term non-deliverable exchange rate have strengthened the guiding effect on the onshore RMB exchange rate,indicating that the offshore RMB market is strengthening its position in the pricing of the RMB exchange rate.The impact of the onshore market is weakening.However,the offshore market is not a sovereign market and the People's Bank of China has limited intervention capacity towards the offshore market,which may cause fluctuations of the RMB exchange rate,resulting in abnormal fluctuations in the RMB exchange rate.This may hinder the development of the RMB internationalization to a certain extentTherefore,in order to promote the internationalization of the RMB and maintain the relative stability of the RMB exchange rate,the government needs to actively promote the reform of the financial industry opening up,constantly improve the foreign exchange market system and mechanism,maintain the flexibility of the RMB exchange rate,and also allow the RMB exchange rate float at a reasonable level Promoting the supply-side reform enable the finance to serve the real economy well.