| Anomaly in China＇s Dollar-RMB |
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| 基金项目： | The author is grateful for the guidance and advice of Professor John Taylor and Professor Ronald McKinnon on this paper. |
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| 摘 要： | Newly-established data on onshore deliverable US dollar-RMB forwards and the Shanghai lnterbank Offered Rate from Oetober 2006 to April 2009 reveal significant violations of covered interest rate parity. This paper explains the cause of this anomaly. Deviations in the forward market are caused by an increase in US dollar-to-RMB conversion restrictions. Given that Chinese monetary authorities want to prevent market participants from taking advantage of the predictable appreciation of the RMB, China＇s State Administration of Foreign Exchange has to tighten up the control on US dollar-to-RMB conversions. Under the tightened conversion restrictions, similar deviations will resurface in the forward market whenever hot money inflow increases. One way to avoid covered interest rate parity violations in the forward market is to decrease hot money inflow into China by maintaining a stable and credible exchange rate policy.
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| 关 键 词： | 人民币 美元 中国 异常 转换控制 市场 利率 参与者 |
Anomaly in China＇s Dollar-RMB |
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| Authors: | Yi David Wang |
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| Institution: | Department of Economics, Stanford University, Stanford, USA |
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| Abstract: | Newly-established data on onshore deliverable US dollar–RMB forwards and the Shanghai Interbank Offered Rate from October 2006 to April 2009 reveal significant violations of covered interest rate parity. This paper explains the cause of this anomaly. Deviations in the forward market are caused by an increase in US dollar-to-RMB conversion restrictions. Given that Chinese monetary authorities want to prevent market participants from taking advantage of the predictable appreciation of the RMB, China's State Administration of Foreign Exchange has to tighten up the control on US dollar-to-RMB conversions. Under the tightened conversion restrictions, similar deviations will resurface in the forward market whenever hot money inflow increases. One way to avoid covered interest rate parity violations in the forward market is to decrease hot money inflow into China by maintaining a stable and credible exchange rate policy. |
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| Keywords: | China covered interest rate parity deliverable forward foreign exchange |
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