Research On The Risk Spillover Effect Of Cny Exchange Rate Fluctuation Since The Reform Of Exchange Rate

Since the parallel systems’ implementation for CNY exchange rate in the year of 1994,the level of CNY exchange rate has gradually become one of the most important levers for China’s external economic adjustment.On July 21 st,2005,China experimented a flexible reform of exchange rate formation mechanism with a basket of currencies for adjustment,which replaced the previous USD pegging system.This is a historic step towards free float for CNY.On August 11 th,2015,the People’s Bank of China announced to implement a major reform of CNY exchange rate system with a statement on the improvement of the central parity quotation of the CNY /USD,also known as the 811 exchange rate reform.At the same time,with the continuous promotion of the internationalization of CNY and the continuous strengthening of international trade between countries,the fluctuation of exchange rate between other currencies also has certain interrelation and influence,which also greatly increases the risk of exchange rate fluctuation.In this context,this paper firstly introduces the concept of exchange rate and exchange rate risk,as well as the research background and significance of exchange rate risk,combing the current situation of relevant research so far and briefly introducing the relevant theories of exchange rate.Secondly,qualitative analysis is carried out in two aspects,on the one hand,the overall analysis of the exchange rate trend of four currencies against the CNY since the reform;on the other hand,this paper analyzes the spillover effect in previous three special events: 811 exchange rate reformation,Brexit referendum and Sino-US trade war.The third step is analysis,which has been input the daily rate of return series of exchange rate from July 1st,2015 to July 1st,2019 into the measurement software,using the measurement method to fit the change of data and analyze and summarize it.Then,the volatility spillover model between the rate of return series of different currencies is calculated to judge the risk spillover.Finally,combine the quantitative analysis and the qualitative analysis to draw the conclusion of this paper,and put forward suggestions for the government,financial institutions,enterprises and individual investors.For investors,first of all,they should pay attention to the diversification of investment to avoid investing in financial assets with the same or similar risk exposure.Secondly,they should pay attention to improve the quality of market participants to make the whole market more mature and rational.Thirdly,strengthen the monitoring of risk spillover in foreign exchange market to maintain the stability of CNY value.