Chinese Offshore RMB Currency and Bond Markets:The Role of Hong Kong

This paper discusses the role of Hong Kong in China＇s grand scheme to build up the RMB as a global reserve currency. We highlight the economic importance of Hong Kong to China in terms of channeling foreign direct investment into China, some of which, in the future, will be denominated in the RMB. We discuss the development of China＇s RMB currency swap and deposit markets in Hong Kong. These offshore markets enable the RMB to trade freely, setting the stage for the RMB to become fully convertible and allowing market forces to play a role in pricing the value of the RMB, and help in the development of the RMB-denominated bond （or dim sum bond） market in Hong Kong. Finally, we present evidence of the phenomenal growth of the dim sum bond market in Hong Kong, which can further enhance and strengthen the use of the RMB outside China.

Spillover Effect in the RMB Foreign Exchange Market:Based on VAR and DCC-MVGARCH Models

This paper analyzes the stability and marketization of the RMB exchange rate after China introduced the foreign exchange rate reform by linking the RMB exchange rate with the offshore and onshore markets on August 11,2015(“8/11”).Under the framework of dynamic analysis,through Granger causality test,VAR model and DCC-MVGARCH model,the empirical analysis is conducted about the three market exchange rate linkages of CNY,NDF and CNH from May 2012 to December 2018.Then,the direction and degree of the linkage between the RMB’s offshore and onshore exchange rates before and after the“8/11”exchange rate reform are compared.The research results show that:(1)since the“8/11”exchange rate reform,the RMB exchange rate has become more flexible;(2)the price-determining power of the RMB exchange rate may be weakened,and policy adjustment should take effect;and(3)the prerequisites,under which the offshore market can play a role,are the development of the market itself.This paper proposes that:(1)the onshore and offshore markets should develop in a collaborative manner to further increase exchange rate elasticity and flexibility;(2)close attention should be paid to the relationship between the offshore and onshore markets,and policy determination and flexibility should be maintained;and(3)the offshore market should be improved and play a due role.

Are Offshore RMB Arrangements the Basis for a Long-term Exchange Rate System without Convertibility?

This paper discusses China＇s relatively new structure of dual onshore and offshore RMB markets. Its distinguishingJeature is both offshore trading at exchange rates that are market determined and onshore trading at exchange rates anchored at the official spot rate with capital account inconvertibility. We note that thus far the CNH and CNY spot rates have largely tracked each other, suggesting that the shadow priee on the convertibility constraint onshore and also the offshore diversification benefit is close to zero. However, this could change in the future. We discuss the potentialJbr the offshore RMB market to grow with trade settlement and bilateral ,swap arrangements in RMB, which would provide a big enough pool ofliquidityforthe RMB to become a vehicle currency and reserve c^rrency. These potential developments will be restrained by onshore inconvertibility, but moving to convertibility seemingly implies major change in China ＂s financial structure and the offshore RMB arrangements are only a small first step along this path. Crucial in this evolution of arrangements will be fi^ture Chinese growth performance and the relative attractiveness of onshore inconvertible but offshore marketable RA4B relative to the debt laden and slow growth currencies of the USA, the EU and Japan.

Offshore fears and onshore risk: exchange rate pressures and bank volatility contagion in China

This paper shows that signals from the offshore China spot market for the Chinese renminbi of the Hong Kong SAR(listed as CNH)directly affect the volatility of share prices of Chinese banks and the overall risks of Chinese banking stability.This is especially so amid heightened uncertainty about global trade or the People’s Republic of China.Thus,the CNH market volatility is a leading indicator of onshore Chinese banking sector volatility.Our results suggest that further offshore exchange market movements arising out of news such as increasing trade friction with the United States will generate greater volatility in the Chinese banking sector.Far from being a shock absorber for the Chinese financial system,the CNH market appears to be a shock transmitter of risk from offshore economic policy uncertainty to the Chinese banking system.