Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/340419 
Year of Publication: 
2023
Citation: 
[Journal:] Borsa İstanbul Review [ISSN:] 2214-8469 [Volume:] 23 [Issue:] 5 [Year:] 2023 [Pages:] 1098-1110
Publisher: 
Elsevier, Amsterdam
Abstract: 
We employ a threshold vector error correction model approach to investigate the impact of China's exchange rate marketization reform in August 2015 on the linkage between renminbi (RMB) onshore (CNY) and offshore (CNH) exchange rates and the impact of post-reform policy interventions by the People's Bank of China (PBoC) on CNY-CNH linkage. We find that, after the reform, price power over the RMB exchange rate changed from the onshore to the offshore market, in which the CNH significantly leads the CNY, and the CNY ceased to lead the CNH. Since the reform, the PBoC has faced a trilemma of exchange rate marketization, RMB internationalization, and maintenance of the onshore market's pricing power over the RMB exchange rate. The PBoC regained its RMB pricing power by reinforcing control over the onshore exchange rate and tightening offshore RMB liquidity, at the expense of setbacks in both exchange rate marketization and RMB internationalization.
Subjects: 
Exchange rate marketization reform
Exchange rate pricing power
Offshore RMB market
RMB internationalization
Threshold VECM
JEL: 
F31
G15
C32
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article
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