Research On The Relationship Between The Development Of Hong Kong’s Offshore RMB Market And RMB Exchange Rate Misalignment

More than thirty years after the reform and opening-up policy, China has experienced rapid economic development, a significant amount of growth in the economy and has become the world’s largest economy outside the U.S.; the degree of integration with the world economy continues to deepen, the total import and export trade in goods has reached world first. Yet at the same time, China’s financial markets still has a long way to go compared with developed countries, the link to international financial markets is also very limited. In this case, we should take efforts to develop the offshore RMB market, and comprehensively promote the internationalization of the RMB, in this way we can promote China’s sustained economic development and achieve optimal allocation of resources indispensable.This paper discusses in detail the formation of offshore financial markets and the existing theoretical concepts, then analyzes and summarizes the formation and development of Hong Kong’s offshore RMB market. After the summary of relevant research on Hong Kong’s offshore RMB market’s impact on the onshore RMB exchange rate, it summarizes methods to further define the exchange rate risk and exchange rate misalignment.As for theoretical foundations, based "trilemma", this paper analyzes the transmission mechanism of Hong Kong offshore RMB exchange rate’s impact on the onshore RMB exchange rate, then analyzes the RMB exchange rate risk and the impact of dislocation, while makes a summary of RMB exchange rate risks associated with exchange rate misalignment. On this basis this paper achieves the organic integration of Hong Kong’s offshore RMB market, the RMB exchange rate risk and exchange rate misalignment problems.In the empirical part, this paper selects sample period between2005and2013of the data of RMB exchange rate, it tests the correlation between Hong Kong offshore RMB market, the RMB exchange rate risk and exchange rate misalignment. Specifically, the first model uses the ARCH-t measure to test the RMB exchange rate value at risk-VaR, then uses the vector autoregression way to test the relevance of Hong Kong’s offshore RMB market and the RMB exchange rate risks. As for the research in the relevant sections of the RMB exchange rate misalignment, the article uses the BEER model to characterize the equilibrium exchange rate of RMB and uses VEC model to test the long-run equilibrium relationship between the variables, and finally uses the ARCH-t model VAR system again, to test the Hong Kong offshore RMB correlation between the market and the RMB exchange rate misalignment.The empirical results show that lagged values of the Hong Kong dollar against the RMB exchange rate risk and lagged values of the rate of change of the Hong Kong dollar against the RMB exchange rate both have a significant impact on the Hong Kong dollar against the RMB exchange rate risk of the current value; lagged values of Hong Kong’s offshore RMB deposit growth and HK dollar against RMB both have a significant impact. Risk exists between Hong Kong’s offshore RMB exchange rate and risk exists in U.S. dollar against the RMB NDF’s12-month long-term have a stable relationship and mutual influence; and the influence is positive. There is also a misalignment correlation between the risk of the RMB exchange rate and the RMB NDF’s12-month. On this basis, Hong Kong’s offshore RMB market can have an effect on the RMB exchange rate, and the indirect impact of the RMB exchange rate can cause the generation of misalignment.In a word, the development of HK’s offshore RMB market has an important effect on the security of foreign currency assets, and eases the RMB exchange rate misalignment, RMB exchange rate has achieved the overall balance. China should continue to develop Hong Kong’s offshore RMB market and promote the process of internationalization of the RMB.