fbpx Offshore Fears and Onshore Risk: Exchange Rate Pressures and Bank Volatility Contagion in the People’s Republic of China | Asian Development Bank

Offshore Fears and Onshore Risk: Exchange Rate Pressures and Bank Volatility Contagion in the People’s Republic of China

Publication | December 2019
Offshore Fears and Onshore Risk: Exchange Rate Pressures and Bank Volatility Contagion in the People’s Republic of China

This study examines whether the spot market in Hong Kong, China for offshore Chinese currency (CNH) acts as a shock absorber for the financial system of the People’s Republic of China.

The findings contrast with one view that the offshore spot market for the currency, listed as CNH, is a shock absorber for the PRC financial system. The analysis suggests that further offshore exchange market movements arising out of news, such as increasing trade friction with the United States, will generate greater volatility in the PRC’s banking sector.

Contents 

  • Introduction
  • Uncertainty, CNH Markets, and Bank Volatility
  • Connectedness
  • Robustness: CNH Volatility or CNH-CNY Spread?
  • Conclusion