​Tiistai 13.12.29016


Zongxin Qian (Renmin University of China): Coping with two exchange rates of a single currency: the case of China


Due to capital control and China's  offore RMB financial centre development strategy, there are two exchange rates of the RMB against the dollar. One is the CNY rate in the mainland China market, the other is the CNH rate in the Hongkong market. The existence of two exchange rates of a single currency suggests that changes in capital control and macroeconomic dynamics could affect arbitrage behaviors of investors in the two RMB markets.  Those arbitrage behaviors could affect the effectiveness of the central bank's policies, particularly, the effectiveness of its intervention in the foreign exchange markets.  Using  data from August, 2010 to October, 2016, we study the dynamic interactions between the CNY and CNH exchange rates and China's capital control and other monetary policies.  We find that the existence of two exchange rates for a single currency does affect the transmission of the central bank' s policies. Policy implications are discussed  on the basis of our empirical findings.


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