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Development of the Renminbi Market in Hong Kong SAR; Assessing Onshore-Offshore Market Integration

Author

Listed:
  • R. S Craig
  • Changchun Hua
  • Philip Ng
  • Raymond Yuen

Abstract

Offshore use of the renminbi expanded rapidly in Hong Kong SAR as China sought to develop an international role for its currency while maintaining capital controls. This prompts two questions addressed in this paper: How far advanced is renminbi internationalization? And, what role does Chinese capital account liberalization play? The first is addressed by testing the extent of integration of offshore and onshore markets for the renminbi using a Threshold Autoregression (TAR) model and finds that there are substantial unexploited arbitrage opportunities. A VAR model is used to indentify factors contributing to this limited market integration and finds that capital controls and shifts in global market sentiment explain much of the divergence in onshore and offshore renminbi exchange rates. To address the second question, the paper shows how capital account measures have been used to promote offshore use of the renminbi more actively in the wake of the global financial crisis, but that this was done asymmetrically with controls on inflows eased to a greater extent than on outflows. It concludes that a more balanced liberalization process will sustain progress in renminbi internationalization.

Suggested Citation

  • R. S Craig & Changchun Hua & Philip Ng & Raymond Yuen, 2013. "Development of the Renminbi Market in Hong Kong SAR; Assessing Onshore-Offshore Market Integration," IMF Working Papers 13/268, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:13/268
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    References listed on IDEAS

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    1. David K. Ding & Yiuman Tse & Michael R. Williams, 2014. "The Price Discovery Puzzle in Offshore Yuan Trading: Different Contributions for Different Contracts," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 34(2), pages 103-123, February.
    2. He, Dong, 2012. "Renminbi Internationalisation: A Primer," MPRA Paper 40672, University Library of Munich, Germany.
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    Cited by:

    1. 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.
    2. Liu, Tao, 2014. "The onshore-offshore interaction of RMB market: a high-frequency analysis," MPRA Paper 63905, University Library of Munich, Germany.
    3. Joseph E. Gagnon & Kent Troutman, 2014. "Internationalization of the Renminbi: The Role of Trade Settlement," Policy Briefs PB14-15, Peterson Institute for International Economics.
    4. Katarzyna Glinka, 2016. "Adaptations Within The Financial Market In China After Global Financial Crisis," Oeconomia Copernicana, Institute of Economic Research, vol. 7(4), pages 565-591, December.
    5. 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.
    6. Löchel, H. & Packham, N. & Walisch, F., 2016. "Determinants of the onshore and offshore Chinese government yield curves," Pacific-Basin Finance Journal, Elsevier, vol. 36(C), pages 77-93.
    7. Sin-Yu Ho & Nicholas M Odhiambo, 2015. "Stock market performance in Hong Kong: an exploratory review," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 29(1), pages 47-61, May.

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