INTERACTIONS BETWEEN THE EXCHANGE RATE OF RMB/USD IN THE ONSHORE AND OFFSHORE MARKETS: EVIDENCE FROM THE COMPARATIVE ANALYSIS ON ‘8.11’ EXCHANGE RATE REFORM IN CHINA

Abstract

This paper uses data pertaining to onshore and offshore markets before and after China’s ‘8.11’ exchange rate reform. The result verifies that after the exchange rate reform, the time series of RMB central parity rate (CPY), spot exchange rate and non-deliverable forward rate in Hongkong offshore market (CNH and NDF) have structural abrupt changes by Chow test from a quantitative perspective. On this basis, the co-integration test, Granger causality test, impulse response under the framework of VAR model, variance decomposition and other methods are used to further study the interaction between the above exchange rates before and after the exchange rate reform and make comparative analysis on them. The results show that the original formation mode of RMB central parity leads to long-term deviation between market transaction price and central parity, onshore price, and offshore price, thus affecting the market benchmark status and authority of the central parity rate. After the ‘8·11’ exchange rate reform in 2015, the trend of the central parity rate, the exchange rate in the onshore market and the offshore market converged significantly, the exchange rate difference reduced significantly, and the correlation between the onshore and offshore exchange rates strengthened.