When analyzing the relationship between the Chinese renminbi (RMB) spot and forward

foreign exchange (FX) rates, this paper takes into account the covered interest parity

(CIP) condition. To incorporate the CIP, the paper introduces the forward swap rate, which

reflects the implicit interest rate differential between the two currencies involved in the

exchange. The result exhibits that both onshore (CNY) and offshore (CNH) spot FX rates

contribute to the price discovery of the spot and forward FX rates. The contribution of the

CNY is equivalent to and more dominant than that of the CNH in the price discovery of

the spot FX rates. This implies that the Chinese monetary authority has the ability to

manage the CNH market by controlling the CNY. The authority can also influence the

pricing of renminbi forward FX rates through its control over the CNY. The empirical

analysis in this paper provides evidence that the central parity setting by the Chinese

monetary authority plays a role in explaining the price leadership of the CNY in the spot

FX market. In other words, the central parity exhibits a signaling effect and directly

influences onshore spot FX trading. During this period, the CNY, serving as a reflection

of information on China's FX rate policy, becomes the price leader in the renminbi

currency markets. However, the analysis also suggests that there are additional factors

contributing to the CNY's price leadership that have not been fully examined. Future

research should explore other Chinese monetary policy instruments that may influence

the price discovery process of the renminbi, in order to gain a more comprehensive

understanding of the dynamics and drivers of the CNY's leadership in the FX market.