Anomaly in China's Dollar–RMB Forward Market

Yi David Wang

China & World Economy, 2010, vol. 18, issue 2, 96-120

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.

Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://doi.org/10.1111/j.1749-124X.2010.01191.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:chinae:v:18:y:2010:i:2:p:96-120

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1671-2234

Access Statistics for this article

China & World Economy is currently edited by Yongding Yu

More articles in China & World Economy from Institute of World Economics and Politics, Chinese Academy of Social Sciences Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().