A Closer Look at the Offshore RMB FX Market and CNH Interbank Liquidity

来源: 《CHINA FOREX》2017年第3期 作者:Yin Yuxi

Two years have passed after the August 11 FX reforms in China. The offshore RMB foreign exchange market (the CNH FX Market) has seen some new phenomena,including the large swing of interbank short term interest rates,an indicator of interbank liquidity. It is worthwhile to have a closer look at this market to better understand how it functions,as we look forward to the next phase of market development.

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The CNH FX market has a comprehensive set of FX instruments including spot,forward,swaps,cross-currency swaps and options. It is participated by not only banks and corporates,but also a wide range of other users including institutional investors,individuals,public sector and others. It is a decentralized,over the counter market that is open around the clock in multiple financial centers. It is not a real-need-based market,so that the market participants could manage their risks with flexibility and operational efficiency. The CNH FX market has become larger than the onshore FX market. The BIS triennial FX survey in 2016 indicated that RMB FX done inside Mainland China accounted for some 22% of global total (Bank for International Settlements,2016). The rest is now mainly CNH (instead of non-deliverable forwards).

Given the experience in the past two years,one may wonder,why the CNH market exhibits the tendency to have extreme interest rate movements ¨C as reflected by the USDCNH swap points (which shows the relative interest rate between the USD and the CNH,Figure 1). Why could a large,actively traded,open and efficient market be so illiquid at times,yet so flushed in others?

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