Research On The Link Between Offshore And Onshore RMB Interest Rate

Since the trials of settling cross-border trade accounts in RMB,the RMB offshore financial business gets a rapid development.It promotes the Hong Kong offshore RMB market initially formed,and effectively makes a great progress in RMB internationalizatioa In this background,the offshore RMB interest rate curve gradually formed,which could reflect the demand for the RMB in international market better.At the same time,with the acceleration of the domestic financial liberalization reform and the broadening of the RMB circulation channels,the correlation degree of RMB offshore and onshore market rise.To some extent,this results the RMB offshore interest rate may be affected by RMB onshore interest rate fluctuations through RMB backflow,which complicates the onshore RMB interest rate decision mechanism and then shakes the pricing right of RMB interest rate in the onshore market,posing a significant threat to the formation of the onshore financial system.In view of this,the research of offshore and onshore RMB interest rate linkage plays vital theoretical value and practical significance in ensuring the people's Bank of China implement monetary policy effectively in the future and accelerating the process of RMB internationalization.This paper constructs a RMB flow model of offshore and onshore RMB interest rate in the onshore market,and theoretically discusses the influence mechranism of the link between offshore and onshore interest rate.On this basis,Hong Kong banks RMB interbank offered rate(CNY HIBOR)and the Shanghai interbank offered rate(SHIBOR)are selected to test the offshore and onshore RMB interest rate linkage effect with Granger causality test and two element GARCH model.For the period from January 2,2012 to October 10,2014,the empirical results with the data of overnight,7 day,14 day,1 month and3 month show that each term interest rates have significant spillover effects of SHIBOR on CNY HIBOR,but the impact of spillover effects of CNY HIBOR on SHIBOR only appears in the long term interest rate portfolio.Due to the lack of the current Hong Kong offshore RMB market breadth and depth,the offshore RMB interest rate curve is not mature,thus the transmission effect for offshore rate on onshore rates do not get fully revealed as other international currencies.Accordingly,it takes a further study on the link between offshore and onshore interest rate of USD,proving that at the beginning stage there only exists the influence from onshore interest rate on offshore one while the two-way influence gradually appears with the progress of offshore market.Moreover,it makes an analysis of the status of early period of domestic and international economic policy in United States,which is similar to China's current situation.Combined with the RMB offshore and onshore development situation at this stage,it can make a derivation that RMB onshore interest rate will form a two-way linkage pattern in the future.In the end,this paper proposes the main reason of the weak transmission for RMB offshore interest rate on RMB onshore interest rate is the sluggishness of RMB backflow channels through analyzing the US dollar circulation pattern,and suggestions are finally offered to copy with the potential risk of the interactive influence of RMB in the future.