The Study On The Influence Factors Of The Spread Between Rmb Onshore And Offshore Exchange Rates

RMB exchange rate on the shore and offshore markets are not consistent due to market segmentation,exchange rate system and the impact of market size In general,the offshore market in Hong Kong is more market-oriented,and therefore it is more vulnerable to be impacted by the international financial markets.Meanwhile,the degree of marketization of the onshore exchange rate is weak due to the implementation of a managed floating exchange rate system.The persistence of this spread provides space for international arbitrage capital to grab profits from it.This arbitrage in short term will result in a large number of cross-border activities of capital,and even lead to the increase in the exchange of residents demand,causing a substantial capital flows,and then influence domestic macro economy.The government has been hoping to curb arbitrage activities,combatting speculative trading,maintaining exchange rate stability,and achieving the basic unity of offshore and onshore market exchange rates.Therefore,the study of the fluctuation trend of the spreads on the shore and the offshore exchange rate,and explore the influencing factors of the exchange spreads,can reduce the risk of the ’sudden stop’ of the capital flow and provide policy basis for exchange rate pricing.This paper studies the causes and factors of the exchange rate spreads.The main conclusions are as follows:Firstly,the RMB onshore and offshore exchange spreads present three main characteristics,the existence of significant remittance,the spreads continue existing and are not high and the spreads fluctuate with time-varying.Secondly,the major reasons for the existence of exchange rate spreads include the mechanism of RMB onshore exchange rate and the offshore exchange rate.The reason for the persistence of exchange rate spreads is that the domestic capital control makes the arbitrage funds unable to move in and out freely.The domestic capital market is not open.The spread between different markets cannot be digested in short term.The exchange rate spreads are not too big because of cross-border trade,spot trade,NDF trade,and the confidence on RMB onshore and offshore marketThirdly,the theoretical analysis shows that the main factors influencing volatility of the exchange spreads include the liquidity of the RMB offshore market,the expectation of the RMB trend,the international market risk aversion and the government’s exchange rate policy.Finally,the empirical study show that the liquidity of offshore RMB market in Hong Kong has a significant negative impact on exchange rate.The higher liquidity the lower appreciation rate of the offshore exchange rate;and the higher exchange rate,the lower volatility of the offshore RMB market Increasing the liquidity of the offshore RMB market will help to reduce the exchange rate spreads and promote the integration of onshore and offshore exchange rates.International investors’ sentiment have significant negative impact on the exchange rate spreads.When the terrorist index rises,investors are bullish on the entire market,especially if the future dollar assets are weaker,then the demand for the dollar was falling,and the exchange rate spreads was also falling.The policies,which expand the floating range of onshore exchange rate and increase the opening of the capital account,have negative effects on the exchange rate spreads.Especially when the exchange rate spreads fluctuate around 0,the influence factors have no significant effect on it There is an obvious effect only when the positive and negative deviations are far from the value of 0.