Since the currency values of the US dollar and RMB are different, if you want to convert RMB into US dollars, there will be a conversion ratio. This conversion ratio is exchange rate , which is equivalent to buying US dollars in RMB or buying RMB in US dollars. So what does it mean to raise the central price of the RMB against the US dollar by 731 basis points? Good or not?
The central price of RMB against the US dollar is raised by 731 basis points
First, let’s see what the central price of RMB against the US dollar means. The mid-price of RMB against the US dollar is not the actual price of buying and selling US dollars in RMB, but the average value of the buy and sell prices.
If we usually want to exchange RMB for US dollars, or exchange US dollars for RMB, we usually have to go to the bank to exchange it. When we exchange RMB for US dollars, for banks, they sell US dollars to buy RMB, and when we exchange US dollars for RMB, the banks buy US dollars to sell RMB.
Since the quotations of RMB against the US dollar are all given by the bank, the price of the bank buying and selling US dollars is the actual trading price.
Generally speaking, the prices of buying and selling US dollars given by banks are different, and the buying price is usually lower than the selling price. Banks also earn handling fees by making the difference formed by selling prices higher than buying prices. The mid-price of the RMB against the US dollar is the average value of buying and selling US dollars.
Secondly, look at the meaning of the RMB rising by 731 basis points against the US dollar. The increase in means that the exchange rate of the RMB against the US dollar increases, that is, the RMB of the same amount can be converted to more US dollars, that is, the RMB appreciates against the US dollar.
The basis point of foreign exchange is the same as the basis point of interest rate, but the expression is slightly different. One basis point of interest rate is usually 0.01%, that is, 0.0001, and one basis point of foreign exchange is also 0.0001. Therefore, an increase of 731 basis points is an increase of 0.0731.
However, the exchange rate quotes between the RMB and the US dollar are usually announced at the exchange rate between the US dollar and the RMB. Therefore, when the exchange rate of the RMB against the US dollar is raised by 731 basis points, it means that the exchange rate of the US dollar against the RMB is actually falling by 731 basis points.
Overall, after the RMB mid-price against the US dollar rose by 731 basis points, it means that the exchange rate of the US dollar against the RMB fell by 731 basis points, and the US dollar depreciated
Is the RMB mid-price against the US dollar better or worse?
Obviously, it cannot be generalized for this issue. The increase in the mid-price of the RMB against the US dollar means that the RMB appreciates against the US dollar, and the impact of the RMB appreciation against the US dollar can be said to be both good and bad. The good thing about
is that the same amount of RMB can be exchanged for more US dollars, which is obviously a good thing for people who go to the United States to travel, study abroad, etc. or import goods from the United States.
When the price of RMB against the US dollar is raised by 731 basis points, it means that if you exchange US$10,000, you can spend 731 yuan less. Holding the same amount of RMB can be exchanged for more US dollars, and then you can buy more American goods, or spend more in the United States.
Of course, the benefits of RMB appreciation are definitely more than these. It can also attract foreign capital to flow into my country, contribute to my country's economic growth and the prosperity of the capital market, and enhance the status of the RMB, etc.
The disadvantage of the appreciation of the RMB against the US dollar is mainly that it will weaken the competitiveness of my country's goods abroad and is not conducive to my country's commodity exports. Since exports are one of the three mainstays that drive the economy, once exports decrease, they will inevitably be detrimental to economic growth.
In short, the appreciation of the RMB against the US dollar is both good and bad. As for whether there are more benefits or more disadvantages, it may also be based on the specific environment.
