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The offshore renminbi exchange rate: Microstructure and links to the onshore market

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  • Cheung, Yin-Wong
  • Rime, Dagfinn

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 (CNY). 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 CNY, 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.

Suggested Citation

  • Cheung, Yin-Wong & Rime, Dagfinn, 2014. "The offshore renminbi exchange rate: Microstructure and links to the onshore market," Journal of International Money and Finance, Elsevier, vol. 49(PA), pages 170-189.
    • Handle: RePEc:eee:jimfin:v:49:y:2014:i:pa:p:170-189
    DOI: 10.1016/j.jimonfin.2014.05.012
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    More about this item

    Keywords

    Foreign exchange market microstructure; Order flow; Limit-order imbalance; CNH; CNY; Central parity rate;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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