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The offshore renminbi exchange rate: Microstructure and links to the onshore market

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  • Cheung, Yin-Wong
  • Rime, Dagfinn

Abstract

The offshore renminbi (CNH) exchange rate is the exchange rate of the Chinese currency transacted outside China. We study the CNH exchange rate dynamics and its links with onshore exchange rates (CNY). Using a specialized microstructure dataset, we find that CNH is significantly affected by its order flow and limit-order imbalance. The offshore CNH exchange rate has an increasing impact on the onshore rate CNY, and significant predictive power for the official RMB central parity rate. The CNH order flow also affects the onshore RMB exchange rate and the central parity rate. The interactions between variables are likely to be time-varying.

Suggested Citation

  • Cheung, Yin-Wong & Rime, Dagfinn, 2014. "The offshore renminbi exchange rate: Microstructure and links to the onshore market," Journal of International Money and Finance, Elsevier, vol. 49(PA), pages 170-189.
  • Handle: RePEc:eee:jimfin:v:49:y:2014:i:pa:p:170-189
    DOI: 10.1016/j.jimonfin.2014.05.012
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    1. repec:eee:jimfin:v:79:y:2017:i:c:p:189-202 is not listed on IDEAS
    2. Shu, Chang & He, Dong & Cheng, Xiaoqiang, 2015. "One currency, two markets: the renminbi's growing influence in Asia-Pacific," China Economic Review, Elsevier, vol. 33(C), pages 163-178.
    3. Funke, Michael & Shu, Chang & Cheng, Xiaoqiang & Eraslan, Sercan, 2015. "Assessing the CNH–CNY pricing differential: Role of fundamentals, contagion and policy," Journal of International Money and Finance, Elsevier, vol. 59(C), pages 245-262.
    4. Cheung, Yin-Wong & Rime, Dagfinn, 2014. "The offshore renminbi exchange rate: Microstructure and links to the onshore market," Journal of International Money and Finance, Elsevier, vol. 49(PA), pages 170-189.
    5. Liu, Tao, 2014. "The onshore-offshore interaction of RMB market: a high-frequency analysis," MPRA Paper 63905, University Library of Munich, Germany.
    6. Yin-Wong Cheung & Cho-Hoi Hui & Andrew Tsang, 2017. "The RMB Central Parity Formation Mechanism after August 2015: A Statistical Analysis," Working Papers 062017, Hong Kong Institute for Monetary Research.
    7. Fatum, Rasmus & Yamamoto, Yohei & Zhu, Guozhong, 2017. "Is the Renminbi a safe haven?," Journal of International Money and Finance, Elsevier, vol. 79(C), pages 189-202.
    8. repec:eee:eneeco:v:77:y:2019:i:c:p:80-92 is not listed on IDEAS
    9. Qing, He & Korhonen, Iikka & Zongxin, Qian, 2017. "Monetary policy transmission with two exchange rates and a single currency : The Chinese experience," BOFIT Discussion Papers 14/2017, Bank of Finland, Institute for Economies in Transition.
    10. Rasmus Fatum & Yohei Yamamoto & Guozhong Zhu, 2016. "Is the Renminbi a Safe Haven?," Working Papers e109, Tokyo Center for Economic Research.
    11. Xu, Hai-Chuan & Zhou, Wei-Xing & Sornette, Didier, 2017. "Time-dependent lead-lag relationship between the onshore and offshore Renminbi exchange rates," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 49(C), pages 173-183.
    12. Yin-Wong Cheung & Cho-Hoi Hui & Andrew Tsang, 2016. "The Renminbi Central Parity: An Empirical Investigation," Working Papers 102016, Hong Kong Institute for Monetary Research.
    13. Cheung, Yin-Wong & Hui, Cho-Hoi & Tsang, Andrew, 2018. "The RMB central parity formation mechanism: August 2015 to December 2016," Journal of International Money and Finance, Elsevier, vol. 86(C), pages 223-243.
    14. Andrea Fracasso, 2015. "Economic Rebalancing and Growth: the Japanese experience and China’s prospects," DEM Discussion Papers 2015/07, Department of Economics and Management.
    15. Jiadong Tong & Zijun Wang & Jian Yang, 2016. "Information Flow Between Forward and Spot Markets: Evidence From the Chinese Renminbi," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 36(7), pages 695-718, July.
    16. repec:eee:pacfin:v:49:y:2018:i:c:p:232-247 is not listed on IDEAS
    17. Yin-Wong CheungAuthor-Workplace-Name: City University of Hong Kong & Matthew S. Yiu, 2016. "Offshore Renminbi Trading: Findings from the 2013 BIS Triennial Central Bank Survey," Working Papers 142016, Hong Kong Institute for Monetary Research.
    18. Eraslan, Sercan, 2017. "Asymmetric arbitrage trading on offshore and onshore renminbi markets," Discussion Papers 13/2017, Deutsche Bundesbank.
    19. repec:kap:iaecre:v:24:y:2018:i:4:d:10.1007_s11294-018-9711-y is not listed on IDEAS
    20. repec:eee:ecmode:v:75:y:2018:i:c:p:81-92 is not listed on IDEAS
    21. Kunze, Frederik & Basse, Tobias & Wegener, Christoph & Spiwoks, Markus, 2018. "The emergence of the RMB: A "New Normal" for China's exchange rate system?," Center for European, Governance and Economic Development Research Discussion Papers 348, University of Goettingen, Department of Economics.

    More about this item

    Keywords

    Foreign exchange market microstructure; Order flow; Limit-order imbalance; CNH; CNY; Central parity rate;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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