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The Dim Sum bond market in Hong Kong, which allows China to regulate the amount of offshore yuans that flow back into the mainland, has grown steadily since its inception in 2007 and is expected to surpass in 2013 the threshold level that would attract insurers and long-term issuers to the market. Yet, the market has not matured sufficiently relative to the yuan deposit market in Hong Kong that has grown at a much faster pace on account of trade liberalization and the use of yuans in China’s international trade settlements. Even though Hong Kong has fulfilled its role as an offshore currency center for the yuan, it is being challenged by Taiwan, Singapore, and London in terms of being the premier location for the issuance of yuan-denominated bonds outside of Mainland China.

This study seeks to explore the presence and the relative strength of market efficiency in the onshore and offshore Renminbi (RMB) forward markets.

In the onshore and offshore foreign exchange markets, the RMB forward contracts are designed in similar ways. However, the underlying economic forces and regulatory frameworks are very different in these two markets. We first analyze the functioning of each market, by examining the covered interest rate parity (CIRP) conditions. Second, we explore the CIRP deviations in the two markets and quantify the role of market frictions and government interventions.

We find that the CIRP condition does not hold in either the onshore or the offshore RMB forward markets. We also find that the offshore market is more efficient than the onshore market in conveying private information about investors’ expectation.

Our results reveal that the onshore RMB forward market provides an imperfect platform for investors to manage their currency exposures. We suggest that by opening the offshore market to domestic participants and the onshore market to more foreigners, the forward rates may become more informative with a greater investor mix. These liberalization efforts are important steps in the right directions to improve market efficiency in the Chinese FOREX market.

This chapter provides a review of the Chinese government policies that promote the internationalization of the Chinese currency, the renminbi or RMB, which include the RMB swap arrangements between the central banks, trading of the RMB across different markets, and establishment of the dim sum bond market. In particular, we update the development of the dim sum bond market in terms of the size, amount of the issues, coupon and tenor characteristics, issuers, and investment bankers of dim sum bond issues. The dim sum bond market appears to be a promising global asset class for investors.

After the 2008 global financial crisis, the world has been through an improving economic integration. The scale of RMB cross-border transaction flows expands as well. Countries around China are gradually accepting the RMB as a means of trading and investing. Nowadays, the phenomenon of RMB substitutes the currencies of neighboring countries has become more and more widespread. As a frontier region for China's opening up to the outside world, Hong Kong's financial market is highly transparent with perfect infrastructures. The completion of the Hong Kong offshore RMB market leads to a rise of the RMB stock in Hong Kong, so there is a clear phenomenon of RMB substituting Hong Kong dollars (HKDs) in Hong Kong. This paper studies the substitution effect of RMB and HKD from both theoretical and empirical aspects, and puts forward policy recommendations based on the research results.

The purpose of this study is to investigate the effects of uncertainty, namely, macroeconomic uncertainty (MU) and financial uncertainty (FU) on foreign exchange market stability, specifically on foreign exchange market pressure (EMP) and jump risk (RJV).

The latent threshold time-varying parameter VAR (LT-TVP-VAR) econometric approach is used in estimations to solve structural breaks.

The relationship of uncertainties and China's foreign exchange market stability is latent threshold nonlinear dynamic time-varying. In China's renminbi (RMB) appreciation stage, both MU and FU weaken the appreciation pressure of RMB. Moreover, MU and FU significantly increase the RJV, while MU significantly affects the RJV of the foreign exchange market. In the RMB depreciation stage, both MU and FU strengthen the EMP.

Findings based on data in China's foreign exchange market can be considered for other global markets in future research.

An increase in MU and FU has a negative effect on foreign exchange stability. Regulators can prevent the economic system uncertainty shocks on foreign exchange market stability through observation and judgment of MU and FU, which helps prevent and relieve financial risks. Investors can reduce foreign exchange risk as the exchange rate rebounds after hedging behavior during high uncertainty periods.

The effect of MU on the foreign exchange market stability is greater than that of FU, regardless of whether EMP or RJV occurs in the foreign exchange market.

The purpose of this paper is to identify the determinants for currency internationalization and forecast the potential of RMB as an international reserve currency.

This paper performs linear or non-linear regressions of the shares of eight major international reserve currencies as the reserve assets in global central banks on the macro economic and financial variables of their corresponding countries to identify the determinants for their international positions, and conducts an “counter-factual simulation” for the potential of RMB as an international reserve currency.

This paper finds that the economic size and the “network externalities” are the most important determinants for the international status of a reserve currency; that exchange rate volatility has negative impacts; the conditions for the RMB internationalization are basically available. The simulation for the potential of RMB as an international reserve currency reveals that the international role of RMB could surpass that of the Japanese Yen and the British Pound, and get close to Euro in the coming 15 years. Based on the empirical evidence, this paper suggests a promoting strategy for RMB internationalization.

This paper has not taken the influence of economic systemic and political factors on the process of RMB internationalization into account.

RMB internationalization promotion should follow the strategy of “stably create RMB international demand in the initial period and dramatically release the RMB overseas supply in the latter period” in the coming 15 years.

The conclusions and policy implications are from the results of the empirical analysis on the 45-year historical experience on the eight main international currencies.

The purpose of this paper is to analyze the influence of different forms of RMB foreign exchange rates on Chinese foreign trade.

This paper constructed spatial panel model and Markov Chain Monte Carlo estimation method and collected the data of 25 countries’ (including China) quarterly macroeconomic data from first quarter of 1993 until third quarter of 2013 to conduct the data analysis.

This paper finds that USD/CNY, which is widely used in trade settlement, is more significant in effecting Chinese export. Totally, 1 percent appreciation of CNY against USD will lead to 1.532 percent decline of Chinese export, while 1 percent appreciation of CNY NEER only 0.42 percent. What is more, 1 percent increases of the volatility of USD/CNY results in 0.579 percent decline of Chinese export. As policy suggestions, we should further reform the foreign exchange derivative market in China, and provide more currency derivatives, so that the ability of Chinese economy to deal with foreign exchange risk could be improved.

Effect of exchange rate on imports and exports relates to the future direction of China’s exchange rate policy. This paper claims that China should accelerate the construction of foreign exchange derivatives market, improving the ability to respond quickly to foreign currency risk.

First, denominated exchange rate has more significant impact on the Chinese export trade to other countries than effective exchange rate. Second, the RMB exchange rate fluctuations also significantly affect the export trade. Third, China’s import and export trade have significant spatial effect.

This paper recommends the construction of the RMB currency futures market as soon as possible, providing a richer foreign exchange derivatives and other risk hedging instruments, thus to enhance the ability to respond to exchange rate risks.

This paper uses spatial panel model with the refined data to study various factors on the import and export trade, and thus more comprehensive analysis on the impact of the exchange rate on the import and export trade with other major countries.

The purpose of this paper is to analyze the “following” behavior of six currencies in East Asia to RMB before and after the “financial crisis”.

Using foreign exchange spot rate data from 2005 to 2013, the authors investigate the dynamic relationship of RMB and six East Asia currencies with method of DCC-GARCH and quantile regression.

The authors get such conclusions: first, most currencies indeed “follow” RMB in whole sample period but the correlation is “time-varying”; second, the degree of co-movement increased as a whole, which reflects that the influence of China in East Asia rose continuously; third, the East Asian currencies behaved differently before the crisis, but reveal some similarities after the crisis, and prefer to “follow” when RMB depreciates and reluctant to follow when RMB appreciates at a comparatively large degree. The authors argue that it may be related to the different macroeconomic environment faced by East Asia region before and after the crisis, the rising economic influence of China and the development of RMB internationalization’s practice.

The effort could strength the understanding to the “following” behavior of East Asia currencies to RMB, the authors also point out that RMB has been as regional currency anchor, but the role of anchor is unstable, and is affected by international economic circumstance, China should adapt some methods to strength RMB’s influence to East Asia currency.

The purpose of this paper is to develop a model to analyze the role of exchange rate appreciation expectation in trade invoicing from the perspective of importers, then empirically analyze it using Japanese export data.

Constructing a theoretical model of importer behavior by analyzing the importer's utility function under an assumption such as “menu cost”, then using econometric method to justify the theoretical model's finding.

It was found that under the assumption of “menu cost”, risk neutrality and price rigidity, there are three directions of appreciation expectation's effect: increasing, unchanged and decreasing theoretically; but under common condition, only a large appreciation expectation will cause an importer to reduce the use of exporter's currency, and the role is constricted by exporters' bargaining capacity. The empirical results of Yen's use in Japan's exports justifies the model's conclusion and shows that commercial pressure and political events are the most important signals to form large appreciation expectation.

This paper has important policy implications for Renminbi (RMB)'s exchange rate policy under the context of RMB internationalization, in order to promote RMB's use in exports; China should control the large appreciation expectation of RMB and the best way is to rigorously tackle trade deficit with US and European countries, and to eliminate the explicit appreciation signal.

The paper analyzes the role of exchange rate appreciation in trade invoicing theoretically and empirically for the first time; and reasonably explains the development of currency invoicing in Japanese exports and contemporary Chinese exports, as well as having important policy implications for Chinese exchange rate policy.

This paper publishes summary results for the first time of a major survey of senior financial practitioners undertaken in Hong Kong and Shanghai in 2005, and compares these with the Global Financial Centre Index first created in 2007 to determine the extent to which both are consistent.

The research is based on a detailed survey and utilizes principal-components analysis to determine the primary factors relevant to the development of both cities as international financial centres (IFCs) and those which the respondents consider will be relevant in the future.

The paper demonstrates that the key “success factors” for both cities in 2005 remain very important in the global financial centres index (GFCI) analysis ten years later but not necessarily by the same ranking. We also found that a number of the “primary” factors change when respondents are asked to consider future success factors.

The survey was conducted ten years ago; however, the results continue to have significant reliability and validity - especially when compared with the results of the GFCI report of 2014.

The paper should enable policy makers and practitioners to better understand the future policy environment needed for extending the financial centre status of both Hong Kong and Shanghai.

This is the first time (some) of the survey findings that have ever been published, and they represent a rich source of information – however, the authors will be examining the survey data for future publications.