DAILY
EXCHANGE RATE BEHAVIOUR OF SPECIAL DRAWING RIGHTS PER YUAN
-Dr.Debesh
Bhowmik
Key
words- SDR Yuan exchange rate, Autoregressive model,ARIMA model,GARCH
model,volatility of exchange rate
JEL-C22,C52,F3,F31
Summery
After the inclusion of Yuan in SDR, the paper
scrutinizes the daily exchange rate behavior of SDR per Yuan from 1/12/2015 to
16/2/2016 because monetarists predicted that RMB will be more volatile. The
paper conducted to find out semilog trend values of exchange rate including
residuals test for serial correlation, heteroscedasticity, autocorrelation and
coefficient test for confidence ellipse. The paper verified the autoregressive
models at lag one and three for which visibility of autocorrelations were also
tested. Even, Box and Pierce(1970) ARMA model is estimated for stationary and
stability of the series. Finally, to test volatility the ARCH test has been
done including GARCH, and its conditional variance following
Bollerslev(1986).The structural break was tested by Bai-Perron model(2003).
The paper showed that the estimated semilog linear model of the daily
exchange rate of SDR per Yuan during 1/12/2015 to 16/2/2016 showed that the
exchange rate has been decreasing at the rate of 0.0697% per day which is
statistically significant.
The paper showed that the exchange rate is declining, showing
stationary and stability but marginal volatility is observed in the ARCH and
GARCH models that can be minimized if China slowly and steadily introduce the
capital account convertibility and financial sector reform including Yuan
internationalization and if China can integrate policy of shore price and
onshore pricing.
The sequential F statistic of break test are
significant at 5% level which are shown in Table where repartitions were
observed at 8,18,26 observations respectively.
After the declaration of the inclusion of RMB in SDR
basket in November,2015, the SDR per Yuan is marginally depreciated with US
Dollar which follows naturally with spot market rate with SDR and the more
volatility was observed since then as predicted by the monetarists. But, the
above models showed that those errors can be minimized through good management
technique of stabilising exchange rate policy which can be helpful through new
liberalized interest rate policy of PBC which can increase offshore and onshore
liquidity and minimize their price differences, can follow convergence of forex
market, can do more swapping, speed up 20-20 development strategy, introduce
macro prudential management, to increase more RMB payments centers, increase
linkages between offshore and onshore markets, and increase scope of FTA and so
on. To face the absolute gap between RMB fixing and the previous trading day
close , the investors can use HKEx’S USD/CNH futures based upon their trading
preferences and investment objectives, either as a cost efficient risk
management tool to hedge against RMB price risk, to capitalize on short term
trading opportunities, or to exploit price discrepancy across the offshore and
onshore markets.
The paper concludes that the SDR per Yuan daily
exchange rate is not much volatile as has been found from several models
studied here and the fear about volatility due RMB inclusion in SDR might be
media effect and is not justified because China had already liberalized
interest rate and depreciated RMB recently by about 6% that could not boost the
volatility of the exchange rate abnormally rather the process of capital
account convertibility and measures on Yuan internalization have been
continuing speedily. Yet, China has to face competition in the freely floating
exchange rate and interest rate with US Dollar and Euro in commodity, money,
capital and stock markets respectively where it will have to increase its
market capitalization and turn over.
PUBLISHED IN FAME,VOLUME-2,MARCH 2017,THE JOURNAL OF FINANCE,ACCOUNTING,MANAGEMENT AND ECONOMICS,
SHRI SHIKSHAYATAN COLLEGE ,DEPARTMENT OF COMMERCE
KOLKATA
