Interactions between CNY and CNH Money and Forward Exchange Markets

David Leung and John Fu
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David Leung: Hong Kong Monetary Authority
John Fu: Hong Kong Monetary Authority

Working Papers from Hong Kong Institute for Monetary Research

Abstract: We analysed the interactions between the RMB deliverable forward markets in Mainland China and Hong Kong. In order to broaden our perspective, we reference this to the Eurodollar market from the late 1950s to early 1980s. Our findings suggest that onshore regulations, notably the Regulation Q interest rate ceiling, were effective in containing spillovers between the Eurodollar market and the US domestic market. For the CNH market, we found evidence that cross-market spillovers between the Mainland and CNH markets became two-way in 2013, but were more limited and mostly not significant in earlier years. It was found that onshore-to-offshore spillovers were larger than spillovers in the opposite direction in most cases. This probably reflects the fact that the CNH market, though rapidly growing, is small compared to the Mainland market, and possibly more subject to onshore influences. Looking ahead, the Mainland market is expected to continue to play a leading role in onshore-offshore money and foreign exchange market interactions since these markets will be ultimately dominated by the monetary policy stance of the onshore authorities.

JEL-codes: F30 G1 G12 G15 Q (search for similar items in EconPapers)
Pages: 36 pages
Date: 2014-06
New Economics Papers: this item is included in nep-cna, nep-mon and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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