"No one can accurately predict the trend of exchange rate " "Don't bet on RMB exchange rate appreciation or depreciation, long-term bets will lose" - a series of statements from the Seventh Working Conference of the National Foreign Exchange Market Self-Discipline Mechanism, which has attracted much attention from the market against the background of the recent RMB exchange rate against the US dollar.
What is the foreign exchange market self-discipline mechanism? At the moment when my country's foreign exchange market opening is advancing in depth, what role does this mechanism play?
If you want to know the origin of the national foreign exchange market self-discipline mechanism, you must start with the market-oriented reform of the RMB exchange rate.
Market-oriented reform moves forward. Balanced "release" and "management"
Since the exchange rate of "8·11" in 2015, the RMB exchange rate no longer focuses on a single dollar, but selects several major currencies, gives corresponding weights, and forms a currency basket. At the same time, based on market supply and demand, we calculate the changes in the RMB multilateral exchange rate index based on a basket of currencies to maintain the basic stability of the RMB exchange rate at a reasonable equilibrium level.
On December 11 of the same year, the China Foreign Exchange Trading Center released the RMB exchange rate index, and since then, it gradually formed a RMB exchange rate mid-price formation mechanism of "closing exchange rate + changes in a basket of currencies".
intermediate price formation mechanism is becoming more and more perfect and the rules are more transparent, making the market play an increasingly important role in the formation of exchange rates; at the same time, this mechanism plays a role in stabilizing market expectations.
Under the new situation, on the one hand, we should give foreign exchange market participants more rights so that all parties can play a more important role; on the other hand, we should crack down on insider trading, market manipulation, money laundering and other improper behaviors, maintain the fair competition order in the market, and control the exchange rate risk of . To balance the relationship between "release" and "management", it is necessary to establish an industry self-discipline system, carry out self-discipline and mutual supervision, form a joint force of " external + self-discipline" and promote the healthy development of the foreign exchange market.
As a result, the China Foreign Exchange Market Self-Discipline Mechanism and the Foreign Exchange Market Steering Committee came into being, and was established in June 2016 and April 2017 to jointly build a foreign exchange market self-discipline system that reflects Chinese characteristics.
connects to international mature mechanisms to regulate market behavior
Look around the international markets, including London, New York, Tokyo, Singapore , Canada, the euro zone, Hong Kong, Australia, etc., all have relatively mature foreign exchange market self-discipline mechanism practices, generally called the FX Committee. Some emerging economies , such as South Africa, have also established foreign exchange market committees.
Since 2012, violations in the international foreign exchange market have occurred frequently, regulatory regulations in various countries have been issued intensively, and the penalties have been continuously strengthened. How to take appropriate measures to further strengthen management, regulate market behavior, and revitalize market confidence has attracted the attention of financial regulatory authorities in various countries. In May 2017, under the guidance of the (BIS) Market Committee of the Bank for International Settlements, the Global Foreign Exchange Committee (GFXC) was established in London and issued the Global Foreign Exchange Market Code as a unified norm of conduct for the global foreign exchange market.
The two-layer architecture is an innovation to supplement the regulatory benefits
The establishment of my country's foreign exchange market self-discipline mechanism and the foreign exchange market steering committee will facilitate better connection with the international community, participate in the formulation of global foreign exchange market behavior norms, and also give China a greater voice in the international foreign exchange market. The reason why
reflects Chinese characteristics is that it has the innovation of its two-layer architecture.
The foreign exchange market self-discipline mechanism is composed of foreign exchange and related market participants. It is a platform for market participants to exercise their self-discipline rights. It self-disciplines the quotation behavior of RMB exchange rate mid-price, as well as the interbank market and bank counter market transaction behavior.
Foreign Exchange Market Steering Committee draws on international experience and is composed of representatives from regulators and market participants. It is responsible for coordinated guidance of self-discipline mechanism business from a macro-overall perspective such as foreign exchange market reform, development and norms. It is similar to the international foreign exchange market committees and joins the GFXC on behalf of China.
People's Bank of China Deputy Governor Liu Guoqiang once pointed out that such a structure not only gives market participants the right to self-discipline, but also provides a platform for communication and coordination for management departments and market participants. It also connects with the international community and represents China in participating in global foreign exchange market governance, which is widely recognized at the GFXC level.
In 2018, the foreign exchange market self-discipline mechanism completed the member stratification work, dividing members into three levels: core members, basic members and ordinary members, and dynamic adjustments were made subsequently. At the Seventh Working Meeting of the National Foreign Exchange Market Self-Discipline Mechanism, the stratified adjustment plan for members of the National Foreign Exchange Market Self-Discipline Mechanism was reviewed and approved.
"Compared with the traditional regulatory model, the self-discipline mechanism has the advantages of low supervision costs and high autonomy, and is a useful supplement to government supervision." BOC Hong Kong Vice Chairman and President Sun Yu believes that regulatory regulations are principles and bottom lines. Self-discipline norms serve as a detailed supplement to principle supervision, covering a wider range of behavioral ethics and market practices, including both bottom line requirements and good industry practices, forming an organic whole with regulatory regulations.
In his opinion, on the one hand, self-discipline can provide positive incentives to member institutions with good implementation of self-discipline norms through arrangements such as member stratification and innovative business trials; on the other hand, it is not ruled out that there are individual institutions that do not abide by self-discipline norms in the market. The self-discipline mechanism can be discovered in a timely manner and corrected in early stages through the implementation of interbank supervision and self-discipline management to avoid the continued deterioration and spread of problems. For improper behaviors that are of serious nature and have touched the regulatory red line, they can submit supervision, and self-discipline and external laws work together to prevent the phenomenon of "bad money driving out good money".
Two-way fluctuations are the norm. We need to actively adapt to
In recent years, my country's financial industry has promoted a higher level of opening up to the outside world, and domestic and foreign asset prices are being transmitted more and more frequently. As a link between domestic and overseas financial products , the RMB exchange rate not only reflects the value of RMB assets, but also increasingly reflects the value of RMB assets.
From the perspective of market trading volume, in 2020, the frequency of the two-way fluctuation of the RMB exchange rate increased and the amplitude expanded. With the more diversified factors and channels of influence in exchange rate, the self-discipline mechanism developed and improved based on mature experience at home and abroad is also expected to play a more important role.
According to data disclosed by the Financial Times, the annualized volatility of the RMB trading price against the US dollar in 2020 was 4.4%, an increase of 0.4% from 2019; the average daily volatility range was 250 basis points, an increase of 49 basis points from 2019; the extreme value of volatility also increased significantly.
As the market-oriented exchange rate formation mechanism continues to deepen, the trading behaviors of various entities are more mature, market participants' ability to accept exchange rate fluctuations has improved, and there has been no panic in the retail market to purchase foreign exchange, settlement of foreign exchange, and the trading market has always maintained good liquidity. Despite the impact of factors such as the epidemic and commodity price turmoil, the foreign exchange market has been operating smoothly throughout the year.
"Enterprises and financial institutions should actively adapt to the two-way fluctuation of exchange rates." In the process of promoting self-discipline, it is necessary to guide enterprises and financial institutions to establish the concept of " risk-neutral ", alleviate the pro-cyclical fluctuations of the foreign exchange market, and help the reform of the RMB exchange rate mechanism continue to move forward smoothly in a more market-oriented direction. This is the essence of the operation of the foreign exchange market self-discipline mechanism in the future. (【Financial Translator】He Fan/text)
