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Relevant Personnel in charge of the People's Bank of China Answer Journalists'Questions on the Exchange Rate of Renminbi
Why does the RMB exchange rate "break 7"?
Relevant Personnel in charge of the People's Bank of China Answer Journalists'Questions on the Exchange Rate of Renminbi
On August 5, the relevant person-in-charge of the People's Bank of China answered a question from a reporter of the Financial Times concerning the RMB exchange rate.
Reporter: Why does the RMB exchange rate "break 7"?
Answer: Due to the influence of external environment, the exchange rate of RMB against the US dollar has depreciated today, breaking through 7 yuan, but the RMB remains stable and strong against a basket of currencies, which is a reflection of market supply and demand and fluctuations in the international exchange market.
China implements a managed floating exchange rate system based on market supply and demand, which is adjusted with reference to a basket of currencies. Market supply and demand play a decisive role in the formation of exchange rate. The fluctuation of RMB exchange rate is determined by this mechanism, which is the proper meaning of floating exchange rate system. From the perspective of global market, exchange rate fluctuation is normal as the price ratio between currencies. With fluctuation, price mechanism can play the role of resource allocation and automatic regulation. If we look back on the changes of the exchange rate of RMB in the past 20 years, we will find that the exchange rate of RMB has been over 8 yuan against US dollar, over 7 yuan and over 6 yuan. Now the exchange rate of RMB has returned to over 7 yuan. It should be pointed out that the RMB exchange rate "break 7", which is not age, can not come back in the past, nor is it a dam, once it is broken through the flood, it will drop thousands of miles; "7" is more like the water level of the reservoir, higher in the flood season, and will fall again in the dry season, fluctuations and fluctuations are normal.
In spite of the recent depreciation of the RMB against the US dollar, the overall appreciation of the RMB has historically occurred. In the past 20 years, the nominal effective exchange rate and the real effective exchange rate of RMB calculated by the Bank for International Settlements have both appreciated by about 30%, and the exchange rate of RMB against the US dollar has appreciated by 20%, which is the strongest currency in the major international currencies. Since this year, the RMB has maintained a stable position in the international monetary system. The RMB has strengthened against a basket of currencies. The CFETS RMB exchange rate index has appreciated by 0.3%. From the beginning of 2019 to August 2, the median exchange rate of RMB against the US dollar depreciated by 0.53%, less than the decline of the exchange rate of the emerging market currencies such as the Korean won, the Argentine peso and the Turkish lira against the US dollar in the same period. It is a relatively stable currency in the emerging market currencies, and stronger than the reserve currencies such as the euro and the pound sterling.
Reporter: What is the trend of RMB exchange rate after breaking 7?
A: The trend of the RMB exchange rate depends on the fundamentals in the long run. In the short run, market supply and demand and the trend of the US dollar will also have a greater impact. Market-oriented exchange rate formation mechanism is conducive to play the role of price leverage in regulating the balance of supply and demand, and plays a macro role in regulating the economy and balance of payments "automatic stabilizer". As a big country, China has complete manufacturing industry, perfect industrial system, strong competitiveness of export sector and moderate import dependence. The fluctuation of RMB exchange rate has a strong regulating effect on China's balance of payments, and the foreign exchange market itself will find a balance.
From a macro perspective, the current economic fundamentals of China are good, the economic restructuring has achieved positive results, strong growth resilience, the macro leverage rate remains basically stable, the financial situation is stable, the financial risks are generally controllable, the balance of payments is stable, cross-border capital flows are generally balanced, and foreign exchange reserves are adequate, all of which are RMB. Exchange rates provide fundamental support. Especially in the context of the current easing of monetary policy in developed economies such as the United States and Europe, China is the only major economy in which monetary policy remains normal. The valuation of RMB assets is still low and the stability is relatively stronger. China is expected to become a "depression" of global capital.
In recent years, the People's Bank of China has accumulated rich experience and policy tools in dealing with exchange rate fluctuations, and will continue to innovate and enrich the control toolbox. In view of the possible positive feedback in the foreign exchange market, it is necessary to take necessary and targeted measures to resolutely combat short-term speculation and speculation and maintain the smooth operation of the foreign exchange market. OK, stabilize market expectations. The People's Bank of China has the experience, confidence and ability to keep the RMB exchange rate basically stable at a reasonable and balanced level.
Reporter: How does the breaking of RMB exchange rate 7 affect enterprises and residents?
A: Reform and opening-up are China's basic national policy. Foreign exchange management should adhere to reform and opening-up, further enhance cross-border trade and investment facilitation, and better serve the real economy. This policy orientation will not change after "breaking 7".
For ordinary people, over the past 20 years, the RMB has risen more and declined less against the US dollar and a basket of currencies. The main financial assets of the Chinese people are the RMB, which is the best protected, and their purchasing power abroad has steadily increased. All of these can be obtained from people traveling abroad, shopping abroad and children overseas. Reflected in learning.
The same is true of enterprises. We do not want enterprises to be too exposed to exchange rate risk, and support enterprises to buy exchange rate hedging products to avoid exchange rate risk. At the same time, we should also see that the current RMB exchange rate may either depreciate or appreciate. Two-way floating is normal, not only for enterprises, but also for more professional financial institutions, it is difficult to predict the trend of the exchange rate.
Therefore, we suggest that we should concentrate on the real business and not spend too much energy on judging or speculating on the trend of exchange rate. We should establish a "risk-neutral" financial concept. We should narrate that foreign exchange derivatives should aim at locking in the cost of foreign exchange, reducing the uncertainty of production and operation, and realizing the profit of main business, rather than foreign exchange derivatives. Goods trading itself is for profit.
On August 5, the relevant person-in-charge of the People's Bank of China answered a question from a reporter of the Financial Times concerning the RMB exchange rate.
Reporter: Why does the RMB exchange rate "break 7"?
Answer: Due to the influence of external environment, the exchange rate of RMB against the US dollar has depreciated today, breaking through 7 yuan, but the RMB remains stable and strong against a basket of currencies, which is a reflection of market supply and demand and fluctuations in the international exchange market.
China implements a managed floating exchange rate system based on market supply and demand, which is adjusted with reference to a basket of currencies. Market supply and demand play a decisive role in the formation of exchange rate. The fluctuation of RMB exchange rate is determined by this mechanism, which is the proper meaning of floating exchange rate system. From the perspective of global market, exchange rate fluctuation is normal as the price ratio between currencies. With fluctuation, price mechanism can play the role of resource allocation and automatic regulation. If we look back on the changes of the exchange rate of RMB in the past 20 years, we will find that the exchange rate of RMB has been over 8 yuan against US dollar, over 7 yuan and over 6 yuan. Now the exchange rate of RMB has returned to over 7 yuan. It should be pointed out that the RMB exchange rate "break 7", which is not age, can not come back in the past, nor is it a dam, once it is broken through the flood, it will drop thousands of miles; "7" is more like the water level of the reservoir, higher in the flood season, and will fall again in the dry season, fluctuations and fluctuations are normal.
In spite of the recent depreciation of the RMB against the US dollar, the overall appreciation of the RMB has historically occurred. In the past 20 years, the nominal effective exchange rate and the real effective exchange rate of RMB calculated by the Bank for International Settlements have both appreciated by about 30%, and the exchange rate of RMB against the US dollar has appreciated by 20%, which is the strongest currency in the major international currencies. Since this year, the RMB has maintained a stable position in the international monetary system. The RMB has strengthened against a basket of currencies. The CFETS RMB exchange rate index has appreciated by 0.3%. From the beginning of 2019 to August 2, the median exchange rate of RMB against the US dollar depreciated by 0.53%, less than the decline of the exchange rate of the emerging market currencies such as the Korean won, the Argentine peso and the Turkish lira against the US dollar in the same period. It is a relatively stable currency in the emerging market currencies, and stronger than the reserve currencies such as the euro and the pound sterling.
Reporter: What is the trend of RMB exchange rate after breaking 7?
A: The trend of the RMB exchange rate depends on the fundamentals in the long run. In the short run, market supply and demand and the trend of the US dollar will also have a greater impact. Market-oriented exchange rate formation mechanism is conducive to play the role of price leverage in regulating the balance of supply and demand, and plays a macro role in regulating the economy and balance of payments "automatic stabilizer". As a big country, China has complete manufacturing industry, perfect industrial system, strong competitiveness of export sector and moderate import dependence. The fluctuation of RMB exchange rate has a strong regulating effect on China's balance of payments, and the foreign exchange market itself will find a balance.
From a macro perspective, the current economic fundamentals of China are good, the economic restructuring has achieved positive results, strong growth resilience, the macro leverage rate remains basically stable, the financial situation is stable, the financial risks are generally controllable, the balance of payments is stable, cross-border capital flows are generally balanced, and foreign exchange reserves are adequate, all of which are RMB. Exchange rates provide fundamental support. Especially in the context of the current easing of monetary policy in developed economies such as the United States and Europe, China is the only major economy in which monetary policy remains normal. The valuation of RMB assets is still low and the stability is relatively stronger. China is expected to become a "depression" of global capital.
In recent years, the People's Bank of China has accumulated rich experience and policy tools in dealing with exchange rate fluctuations, and will continue to innovate and enrich the control toolbox. In view of the possible positive feedback in the foreign exchange market, it is necessary to take necessary and targeted measures to resolutely combat short-term speculation and speculation and maintain the smooth operation of the foreign exchange market. OK, stabilize market expectations. The People's Bank of China has the experience, confidence and ability to keep the RMB exchange rate basically stable at a reasonable and balanced level.
Reporter: How does the breaking of RMB exchange rate 7 affect enterprises and residents?
A: Reform and opening-up are China's basic national policy. Foreign exchange management should adhere to reform and opening-up, further enhance cross-border trade and investment facilitation, and better serve the real economy. This policy orientation will not change after "breaking 7".
For ordinary people, over the past 20 years, the RMB has risen more and declined less against the US dollar and a basket of currencies. The main financial assets of the Chinese people are the RMB, which is the best protected, and their purchasing power abroad has steadily increased. All of these can be obtained from people traveling abroad, shopping abroad and children overseas. Reflected in learning.
The same is true of enterprises. We do not want enterprises to be too exposed to exchange rate risk, and support enterprises to buy exchange rate hedging products to avoid exchange rate risk. At the same time, we should also see that the current RMB exchange rate may either depreciate or appreciate. Two-way floating is normal, not only for enterprises, but also for more professional financial institutions, it is difficult to predict the trend of the exchange rate.
Therefore, we suggest that we should concentrate on the real business and not spend too much energy on judging or speculating on the trend of exchange rate. We should establish a "risk-neutral" financial concept. We should narrate that foreign exchange derivatives should aim at locking in the cost of foreign exchange, reducing the uncertainty of production and operation, and realizing the profit of main business, rather than foreign exchange derivatives. Goods trading itself is for profit.