Social Sciences in China (Chinese Edition)

No.4, 2018

 

The RMB Carry Trade: Its Market Base and Income Risk Characteristics

(Abstract)

 

He Chengying, Wang Zhanhai, Lü Qiuhong et al.

 

Global economic and financial virtualization has seen a rise in the volatility of interest rates and exchange rates. To achieve their goal of maximizing profits, economic entities represented by transnational corporations are optimizing their global resource allocation, entering and leaving interest and exchange rate markets to engage in carry trade. The longterm and extensive nature of the corresponding transactions shows that the parity equilibrium relationship between interest and exchange rates proposed by interest rate parity theory is not tenable; the carry trade has a negative effect on the security of the financial system. An empirical study of the mechanism of the RMB carry trade shows that on the assumption that the capital account is not completely open, RMB carry trade has a number of channels, among which commodity trading is particularly prominent. Therefore, in the course of RMB internationalization, we need to improve financial supervision and coordinate the sequencing and pace of the opening of the capital account, to prevent the carry trade from jeopardizing the development of the real economy.