RMB Internationalization: O+L5022nshore/Offshore Links

May 1, 2012

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Format: Chicago

Samar Maziad, and Joong S Kang. RMB Internationalization: O+L5022nshore/Offshore Links, (USA: International Monetary Fund, 2012) accessed December 3, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Among emerging market currencies, the RMB holds the most potential to become widely used internationally, due to China‘s large economic size, diversified trade structure and network, macroeconomic stability, and high growth rates - both current and expected. Yet, foreign access to RMB-denominated assets that could act as global stores of value remains limited due to extensive restrictions on capitals flows. At the same time, the rapid expansion of RMB trade settlement and issuance of RMB-denominated bonds by the Chinese government and corporates in Hong Kong, SAR have created some feedback channels across onshore (CNY) and offshore (CNH) RMB markets. We employed a bivariate GARCH model to understand the inter-linkages between onshore and offshore markets and found that, while developments in the onshore spot market exert an influence on the offshore spot market, offshore forward rates have a predictive impact on onshore forward rates. We also find evidence of volatility spillovers between two markets. Overtime, those spillover channels would be expected to grow as the offshore market further develops.

Subject: Balance of payments, Banking, Capital controls, Currencies, Currency markets, Exchange rates, Financial markets, Financial sector development, Foreign exchange, Money

Keywords: Bond market, Capital controls, China, Currencies, Currency internationalization, Currency markets, Currency spillovers, Exchange rate, Exchange rates, Financial sector development, Forward rate, Global, Market development, Market dynamics, Market participant, Offshore centers, Offshore market, RMB internationalization, RMB market, Swap line, Trade settlement, U.S. dollar, Unit of account, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/133
Stock No:

WPIEA2012133
ISBN:

9781475503838
ISSN:

1018-5941

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