The Impact Of RMB Internationalization On Price Discovery Function Of Onshore And Offshore RMB Markets

The stable exchange rate is one of the most important conditions for the stable economy.Since the launch of renminbi exchange rate reform in 2005,on the one hand,RMB exchange market still remains restrictive and strictly regulated,but on the other hand,many offshore renminbi exchange markets were established.RMB started playing an increasingly significant role in international trade and settlement,which makes it to be regarded as one of the most important international reserve and trade currencies.During the process of RMB internationalization,two events were considered as particularly important:widening the RMB/USD daily trading band to ± 2%and the IMF approval for RMB to be included into SDR basket in 2016.These two events,which happened on March 14th,2014 and November 30th 2015 respectively,were taken as the dividing lines as research was carried out in three periods:before any of two events happened,after the first event took place and after both events happened.This study examines the onshore renminbi spot exchange rate(CNY)and offshore(Hong Kong)renminbi spot exchange rate(CNH).The impact of RMB internationalization events on the price discovery function of RMB is studied.In doing so,the market data is analyzed and information shares contributed by each of two markets to price discovery are estimated according to the different approaches.The results of the research show that the price leading relation between CNY and CNH markets changes and the development of the CNH market significantly weakens the degree of the price contribution of the CNY market.