On October 11, the Central Bank official website published an article by the Monetary Policy Department "Deeply Promote Exchange Rate Marketization Reform". The article emphasizes that under the market-oriented exchange rate formation mechanism, the points of exchange rate are inaccurate, and two-way fluctuations are the norm, and there will be no " unilateral market "; RMB exchange rate has a solid foundation to maintain basic stability at a reasonable equilibrium level.
Next step, the central bank will continue to promote the construction of a multi-level foreign exchange market system, further improve the depth and breadth of the foreign exchange market, and guide enterprises and financial institutions to establish the risk-neutral concept. Comprehensive measures to stabilize expectations, resolutely curb the ups and downs of exchange rates, and maintain the basic stability of the RMB exchange rate at a reasonable equilibrium level.
The exchange rate market-oriented reform has achieved remarkable results
The RMB is currently one of the few strong currencies in the world. The annualized volatility remains at around 3%-4%
The article stated that the exchange rate market-oriented reform has achieved remarkable results, mainly in four aspects.
First of all, the formation of the RMB exchange rate plays a decisive role in the market. People's Bank of China has withdrawn from normal intervention. The RMB exchange rate is determined by market supply and demand. While playing the role of price signals, it has improved resource allocation efficiency. At the same time, the market-oriented RMB exchange rate helps to improve monetary policy autonomy. The People's Bank of China mainly implements the prudent monetary policy based on the domestic economic and financial situation, which balances the international balance of payments and promotes internal and external equilibrium.
Secondly, the RMB exchange rate fluctuates in both directions and increases elasticity. The convertibility of RMB continues to increase, the two-way floating characteristics of the exchange rate are obvious, and the annualized volatility remains at around 3%-4%, which has played a good role as macroeconomic and the automatic balance of payments stabilizer. In many rounds of major shocks such as Sino-US economic and trade frictions, the outbreak of the new crown pneumonia epidemic and the global spread, the world economic recession, global inflation and tightening monetary policies in developed economies, the RMB exchange rate can be adjusted quickly and restored to balance in a short period of time, effectively playing the role of in hedging the impact of .
Third, the RMB exchange rate has remained basically stable at a reasonable equilibrium level. Exchange rate stability is not fixed in specific values, but achieves equilibrium in dynamic changes. Since exchange rate reform in 2005 to August 2022, the central price of RMB against the US dollar, euro and yen has appreciated by about 20%, 45%, and 47%, respectively. During the same period, the nominal effective exchange rate of RMB and the actual effective exchange rate index of announced by the Bank for International Settlements (BIS) of the International Settlements appreciated by 49% and 52% respectively. Since 2022, the RMB exchange rate has remained basically stable at a reasonable equilibrium level, and the RMB exchange rate index of China Foreign Exchange Trading Center (CFETS) has remained basically the same as at the end of 2021. The RMB exchange rate against the US dollar depreciated, but the depreciation rate is significantly smaller than the appreciation rate of the index of the index during the same period; the RMB appreciates significantly against the euro, pound and yen, and is one of the few strong currencies in the world at present.
The fourth is that the foreign exchange market foundation formed by the RMB exchange rate is more solid. Faced with the complex external situation, the People's Bank of China strengthened the management of expectations and guided , and the foreign exchange market expectations remained stable, and the intermediate price, on-site price and off-FOB price achieved "three-price integration", avoiding the impact of exchange rate overshooting on the macro economy. The depth and breadth of the foreign exchange market are constantly expanding, with more than 40 tradable currencies, and the trading varieties cover mainstream international foreign exchange trading products. The trading volume has tripled since 2012 and reached US$36.9 trillion in 2021. The market's ability to withstand shocks has been significantly enhanced, and the supply and demand of the interbank foreign exchange market of is basically balanced. The derivative product system is constantly improving, covering the basic international foreign exchange market product systems such as forward, foreign exchange swaps, currency swaps, and options , effectively meeting the various exchange rate hedging needs of market entities, and the ability of market entities to adapt to RMB exchange rate fluctuations is constantly improving. In the first half of 2022, enterprises used forwards and options and other foreign exchange derivatives to manage the exchange rate risk of . The scale of reached US$755.8 billion, a year-on-year increase of 29%. The foreign exchange hedging ratio increased by 4.1 percentage points from the whole year of last year, reaching 26%.
The RMB exchange rate remains basically stable at a reasonable equilibrium level. There is a solid foundation for
The article pointed out that after the outbreak of the epidemic, China was the first to become the only major economy in the world to achieve positive economic growth in 2020, and its economic resilience continues to increase. Recently, my country's economy has continued to recover and develop in a general manner, maintaining basic stability of prices against the backdrop of global high inflation, and the trade surplus has continued to remain high. The trade difference of in the first eight months of this year is US$456.05 billion, a year-on-year increase of 57%. With the emergence of the macro policy, the basic economic situation will be more solid, which is the largest basic market for the stable exchange rate.
At the same time, the central bank insists on implementing normal monetary policies, with sufficient policy space and rich toolboxes. At the same time, the trend of the RMB is clear, RMB assets are safe, and the recognition of the RMB will continue to increase in the future. RMB exchange rate formation mechanism is suitable for China's national conditions, and can give full play to the role of the "two hands" of the market and the government, withstood the test of multiple rounds of external shocks, the People's Bank of China has accumulated rich response experience, can effectively manage market expectations, and provide solid guarantees for exchange rate stability.
Judging from the trend in recent years, the bilateral exchange rate of the RMB against the US dollar and the US dollar index have no one-to-one correspondence, and the situation of the appreciation of the US dollar and the stronger the RMB has also occurred. After the first two RMB exchange rate against the US dollar "breaks 7", as the market situation changes, the exchange rate returns to below 7 yuan, market supply and demand always play a decisive role, and the foreign exchange market has the ability to achieve independent balance. It must be recognized that under the market-oriented exchange rate formation mechanism, the exchange rate points are inaccurate, and two-way fluctuations are the norm, and there will be no "unilateral market".
Resolutely curbs the big ups and downs of exchange rates
For the next step of work, the article said that the People's Bank of China will adhere to the floating exchange rate system based on market supply and demand, refer to a basket of currencies, and manage , unswervingly deepen exchange rate marketization reform, enhance the flexibility of the RMB exchange rate, and better play the role of an automatic stabilizer for exchange rate regulation macroeconomics and balance of payments. Continue to promote the construction of a multi-level foreign exchange market system, further improve the depth and breadth of the foreign exchange market, and guide enterprises and financial institutions to establish the concept of risk neutrality. Comprehensive measures to stabilize expectations, resolutely curb the ups and downs of exchange rates, and maintain the basic stability of the RMB exchange rate at a reasonable equilibrium level.
text/Beijing Youth Daily reporter Cheng Jie
editing/tianye
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