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RMB Internationalization: Onshore/Offshore Links

Samar Maziad

International Monetary Fund (IMF)

Joong Shik Kang

International Monetary Fund (IMF)

May 2012

IMF Working Paper No. 12/133

Among emerging market currencies, the RMB holds the most potential to become widely used internationally, due to China‘s large economic size, diversified trade structure and network, macroeconomic stability, and high growth rates - both current and expected. Yet, foreign access to RMB-denominated assets that could act as global stores of value remains limited due to extensive restrictions on capitals flows. At the same time, the rapid expansion of RMB trade settlement and issuance of RMB-denominated bonds by the Chinese government and corporates in Hong Kong, SAR have created some feedback channels across onshore (CNY) and offshore (CNH) RMB markets. We employed a bivariate GARCH model to understand the inter-linkages between onshore and offshore markets and found that, while developments in the onshore spot market exert an influence on the offshore spot market, offshore forward rates have a predictive impact on onshore forward rates. We also find evidence of volatility spillovers between two markets. Overtime, those spillover channels would be expected to grow as the offshore market further develops.

Number of Pages in PDF File: 38

Keywords: Currency Internationalization, Currency Spillovers, Offshore Centers, Exchange Rates, Financial Stability, Offshore Financial Centers

JEL Classification: E42, F31, F33

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Date posted: August 9, 2012  

Suggested Citation

Maziad, Samar and Kang, Joong Shik, RMB Internationalization: Onshore/Offshore Links (May 2012). IMF Working Paper No. 12/133. Available at SSRN: http://ssrn.com/abstract=2127027

Contact Information

Samar Maziad (Contact Author)
International Monetary Fund (IMF) ( email )
700 19th Street, N.W.
Washington, DC 20431
United States
Joong Shik Kang
International Monetary Fund (IMF) ( email )
700 19th Street, N.W.
Washington, DC 20431
United States
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