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The Renminbi Central Parity: An Empirical Investigation

Author

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  • Yin-Wong Cheung

    (City University of Hong Kong)

  • Cho-Hoi Hui

    (Hong Kong Monetary Authority)

  • Andrew Tsang

    (Hong Kong Institute for Monetary Research)

Abstract

On August 11 2015, China revamped its procedure of setting the official central parity of the renminbi (RMB) against the US dollar. Our empirical investigation shows that the intertemporal dynamics of China¡¯s central parity are not the same before and after this policy change. They are more variable and have a few new determining factors. Both the deviation of the RMB offshore rate from the central parity and the US dollar index are the two significant determinants of the central parity both before and after the policy change. The VIX index has explanatory power before August 2015, but not after. After August 2015, the onshore RMB rate and the difference between the one-month offshore and onshore RMB forward points show a significant impact on the central parity. While the US dollar index effect remains, we find no evidence of a role for the RMB exchange rate against the currency basket revealed by China in December 2015 in the fixing process.

Suggested Citation

  • Yin-Wong Cheung & Cho-Hoi Hui & Andrew Tsang, 2016. "The Renminbi Central Parity: An Empirical Investigation," Working Papers 102016, Hong Kong Institute for Monetary Research.
  • Handle: RePEc:hkm:wpaper:102016
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    Cited by:

    1. Daniela Marconi, "undated". "Currency Co-Movements In Asia-Pacific: The Regional Role Of The Renminbi," GRU Working Paper Series GRU_2016_023, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    2. Yin-Wong Cheung & Cho-Hoi Hui & Andrew Tsang, 2017. "The RMB Central Parity Formation Mechanism after August 2015: A Statistical Analysis," Working Papers 062017, Hong Kong Institute for Monetary Research.
    3. repec:zbw:bofitp:2017_010 is not listed on IDEAS
    4. Yin-Wong Cheung & Cho-Hoi Hui & Andrew Tsang, 2016. "The Renminbi Central Parity: An Empirical Investigation," Working Papers 102016, Hong Kong Institute for Monetary Research.
    5. repec:zbw:bofitp:2017_015 is not listed on IDEAS
    6. Cheung, Yin-Wong & Hui, Cho-Hoi & Tsang, Andrew, 2018. "The RMB central parity formation mechanism: August 2015 to December 2016," Journal of International Money and Finance, Elsevier, vol. 86(C), pages 223-243.
    7. Funke, Michael & Loermann, Julius & Tsang, Andrew, 2017. "The information content in the offshore Renminbi foreign-exchange option market: Analytics and implied USD/CNH densities," BOFIT Discussion Papers 15/2017, Bank of Finland Institute for Emerging Economies (BOFIT).
    8. Cho-Hoi Hui & Chi-Fai Lo, 2018. "A simple explanation of biased movements of renminbi exchange rate," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 5(04), pages 1-12, December.
    9. Urban J. Jermann & Bin Wei & Vivian Z. Yue, 2022. "The Two‐Pillar Policy for the RMB," Journal of Finance, American Finance Association, vol. 77(6), pages 3093-3140, December.
    10. Zuzana Rowland & George Lazaroiu & Ivana Podhorská, 2020. "Use of Neural Networks to Accommodate Seasonal Fluctuations When Equalizing Time Series for the CZK/RMB Exchange Rate," Risks, MDPI, vol. 9(1), pages 1-21, December.
    11. Daniela Marconi, "undated". "Currency Co-Movements In Asia-Pacific: The Regional Role Of The Renminbi," GRU Working Paper Series GRU_2016_023, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    12. Frederik Kunze, 2020. "Predicting exchange rates in Asia: New insights on the accuracy of survey forecasts," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 39(2), pages 313-333, March.
    13. Katarzyna Twarowska, 2019. "Reforms of China’s exchange rate regime and the renminbi interna-tionalization," Ekonomia i Prawo, Uniwersytet Mikolaja Kopernika, vol. 18(4), pages 531-556, December.
    14. repec:zbw:bofitp:2017_007 is not listed on IDEAS
    15. Tom Pak Wing Fong & Alfred Yun Tong Wong, 2020. "Safehavenness of the Chinese renminbi," International Finance, Wiley Blackwell, vol. 23(2), pages 215-233, August.
    16. Wan, Xiaoli & Yan, Yuruo & Zeng, Zhixiong, 2020. "Exchange rate regimes and market integration: evidence from the dynamic relations between renminbi onshore and offshore markets," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    17. Kunze, Frederik, 2017. "Predicting exchange rates in Asia: New insights on the accuracy of survey forecasts," University of Göttingen Working Papers in Economics 326, University of Goettingen, Department of Economics.

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    More about this item

    Keywords

    China; RMB; exchange rate policy; central parity rate; on-shore and off-shore rates;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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