The Offshore Renminbi Exchange Rate: Microstructure and Links to the Onshore Market
City University of Hong Kong - Department of Economics & Finance; University of California at Santa Cruz - Department of Economics
BI Norwegian Business School
September 29, 2014
BOFIT Discussion Paper No. 17/2014
Abstract: The offshore renminbi (CNH) exchange rate is the exchange rate of the Chinese currency transacted outside China. We study the CNH exchange rate dynamics and its links with onshore exchange rates. Using a specialized microstructure dataset, we find that CNH is significantly affected by its order flow and limit-order imbalance. The offshore CNH exchange rate has an increasing impact on the onshore rate, and significant predictive power for the official RMB central parity rate. The CNH order flow also affects the onshore RMB exchange rate and the central parity rate. The interactions between variables are likely to be time-varying.