Abstract
ABSTRACT The central parity rate (CPR) is a key instrument for the People’s Bank of China (PBC) to manage the Renminbi (RMB) exchange rate. The current method of CPR formation rests on a gauge of the ‘demand and supply conditions’ in the foreign exchange market. But there are two markets for RMB, the onshore market for CNY and the offshore market for CNH. In this article, we study the role of the offshore market in the CPR formation mechanism and find that changes in CNH have statistically significant predictive power on CPR, especially after the ‘8.11’ reform of 2015. This suggests that PBC does consider the conditions in the offshore market as well as those in the onshore market.
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