Research On The Linkage Relationship Between Exchange Rate Expectations And The Scale Of Offshore RMB Assets

The process of currency internationalization in developed countries shows that the development of offshore markets and the stability of exchange rates have an important positive effect on it.As China's domestic economic and financial reforming continue to advance and deepen,the internationalization of the RMB is gradually entering a"normalized" development process.RMB's international status in both investment settlement and cross-border transactions was further enhanced when RMB officially j oined the SDR currency basket in October 2016.The process of the internationalization of RMB has accelerated significantly,but it has spawned some problems at the same time.With the continuous expansion of RMB cross-border circulation channels and the gradual opening of capital projects,the scope and flow of RMB cross-border flows will greatly increase,and the boundaries and scale of offshore markets will continue to expand,which will increase the risk from the assets held by foreign investors and the difficulty of the macro financial regulation in China.It is known that,the expected fluctuation of the RMB exchange rate will directly affect capital account transactions and overseas RMB asset demand.Therefore,systematic study of the mutual influence of offshore RMB asset size and exchange rate expectations will help to grasp the relationship between offshore market development and exchange rate volatility,which will be of great significance to optimize the China's macro-financial control objectives,steadily advance the opening up of the financial system and the internationalization of the RMB.Based on the above facts,this paper focuses on analyzing the linkage relationship between the scale of offshore RMB assets and exchange rate expectations,and takes into account the possible impact of deposit spread between mainland China and Hong Kong on the premise that there are still capital controls in the country.This article takes the cross-border real economy cycle and the cross-border financial cycle as the analytical framework.Firstly,the paper analyzes the motivation for overseas demand for RMB assets based on the theory of money demand,and details the linkage between exchange rate expectations and the scale of offshore RMB assets.Later,the paper describes the development status of Hong Kong's RMB offshore market and RMB return and outflow channels.On these basis,the paper establishes a VEC model based on exchange rate expectations,RMB deposits in Hong Kong and the deposit interest rate spread between mainland China and Hong Kong,dialectically analyzing the relationship between exchange rate expectations and offshore RMB asset size.The empirical results show that there are varying degrees of influence among the three variables:1)The expected change of the RMB exchange rate is the main reason for the change of RMB deposits in Hong Kong,and the direct impact of changes in interest rates spread between mainland China and Hong Kong is not significant;2)There is a mutual reinforcing effect between the growth of RMB deposits in Hong Kong and RMB appreciation expectation.With the long-term and stable RMB appreciation expectation,lager RMB stock in Hong Kong indicates the increase of demand for RMB assets by overseas investors,which will further shape the expected RMB appreciation;3)In the medium or long term,the increase in deposit spreads between mainland China and Hong Kong will result in the RMB appreciation expectation in Hong Kong.Therefore,this paper proposes that our country should prudently works on opening up capital projects,establishing a cross-border RMB mobile monitoring mechanism,enriching the types of RMB assets in offshore financial markets,developing the investment function of offshore RMB capital,implementing a stable monetary policy and strengthening exchange rate expectations management.