Abstract

So far, there have not been systematic studies in domestic academic circles on the RMB arbitrage trading mechanism in the offshore and onshore markets. This chapter makes an analysis of arbitrage activities conducted in Hong Kong's RMB offshore market and the interaction mechanism between the onshore and offshore markets. After in-depth studies, the authors have found that pushing forward RMB-denominated trade settlement and developing an offshore market before the marketization of the RMB exchange rate will produce a lot of non-risk arbitrage opportunities. To push forward RMB’s internationalization, China should first promote a full marketization of its RMB exchange rate. The sequence of reform priorities should not be inverted. This paper consists of four parts: first an overview of relevant viewpoints; second the trading logic in the offshore market; third the trading logic in the onshore market; and final conclusions. Keywords:arbitrage activity; capital account control; China; exchange rate; RMB’s internationalization

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