Abstract The spokesman of the People's Bank of China said on the 12th that China has implemented a managed floating exchange rate system based on market supply and demand. Exchange rate fluctuations are normal and should be viewed by customers. In the future, the People's Bank of China [microblogging] will further improve the marketization of the RMB exchange rate...
A spokesman for the People's Bank of China said on the 12th that China has implemented a managed floating exchange rate system based on market supply and demand. Exchange rate fluctuations are normal and should be viewed by customers. In the future, the People's Bank of China [microblogging] will further improve the formation mechanism of the RMB exchange rate marketization, maintain the normal fluctuation of the exchange rate, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level. The spokesman stressed that there is currently no basis for the continued depreciation of the RMB exchange rate. RMB will not continue to depreciate
The spokesman said that from the perspective of international and domestic economic and financial situations, there is currently no basis for the continued depreciation of the RMB exchange rate. First, China's economic growth rate is relatively high. In the first half of this year, in the face of complex and severe international and domestic environments and various difficult challenges, China's economy still grew by 7%, and maintained a relatively high growth rate from a global perspective. Large fluctuations in money supply and total credit in July should be temporary and controllable, and China will continue to maintain a prudent monetary policy. In the near term, major economic indicators have stabilized and the economic operation has undergone positive changes, providing a good macroeconomic environment for the RMB exchange rate to remain stable. Second, China's current account has maintained a long-term surplus. The trade surplus of goods in the first seven months of 2015 reached US$305.2 billion. This is the main fundamental factor determining the supply and demand of the foreign exchange market and an important basis for supporting the RMB exchange rate. Third, in recent years, the internationalization of the RMB and the opening up of the financial market have accelerated. The demand for RMB by overseas entities in terms of trade and investment and asset allocation has gradually increased, which has injected new impetus into stabilizing the RMB exchange rate. Fourth, the market expects the Fed to raise interest rates and cause the US dollar to strengthen for a long time. The market is already digesting this. After the Fed’s interest rate hike in the future, I believe that the market will have more rational judgments. Fifth, China's foreign exchange reserves are abundant, its financial position is good, and its financial system is sound, which provides a strong support for the stability of the RMB exchange rate.
Increased marketization of the middle price
The spokesman said that the central parity of the RMB against the US dollar on August 12 and the mid-price change on August 11 were close to 1.6% (depreciation direction), mainly due to the release of financial statistics for July on August 11 and the analysis of new data. On the basis of further improvement of the quotation of the RMB against the US dollar exchange rate, the market maker makes a quotation.
Due to the intraday fluctuations in the foreign exchange market, if the closing exchange rate of the previous day is larger than the central parity of the RMB exchange rate on the previous day, the central parity of the RMB exchange rate on that day will be correspondingly changed from the central parity of the previous day. On August 11, the closing exchange rate of the inter-bank foreign exchange market was 6.3231 yuan, which was 1.5% lower than the median price of 6.2298 yuan on August 11. This is an important reference for market makers to provide the intermediate price of RMB exchange rate on August 12. At the same time, market makers will also consider the factors of foreign exchange supply and demand and changes in international major currency exchange rates, and then form a final offer. It can be seen that under the managed floating exchange rate system, the fluctuation of the central parity of the RMB exchange rate is normal, not only the embodiment of the increase in the marketization of the intermediate price, but also the reflection of the decisive role of market supply and demand in the formation of the exchange rate. Of course, after perfecting the quotation of the RMB exchange rate, it takes a certain amount of time for the market maker to quote and conduct market trading trials and seek the balance of supply and demand in the foreign exchange market. These may temporarily increase the fluctuation of the central parity of the RMB exchange rate. After the short run-in period, the exchange rate fluctuations in the foreign exchange market and the resulting changes in the central parity of the RMB exchange rate will gradually become reasonable and stable.
The spokesman said that the adjustment of the mid-price quotation is conducive to reducing distortions, which obviously helps to push the central parity of the RMB against the US dollar to the market equilibrium exchange rate. Under the managed floating exchange rate system, the market exchange rate should be centered around the central exchange rate of the RMB exchange rate as the benchmark exchange rate. The deviation between the market exchange rate and the middle price can be corrected by the market's own repair function. Since the third quarter of 2014, China's trade surplus has remained at a high level, while the US dollar has appreciated against other major international currencies. The impact of the two on the RMB exchange rate is different. Market makers are expected to differentiate significantly, making the RMB exchange rate intermediate price and market exchange rate appear. Long-term deviation. This adjustment of the market maker's quotation, so that the formation of the middle price more reference to the overall supply and demand relationship in the foreign exchange market, from the mechanism to prevent the central price and the market exchange rate continue to significantly deviate, improve the rationality of the middle price quote. In the future, the central parity of the RMB exchange rate will mainly be formed by reference to the market equilibrium exchange rate, while continuing to play the role of the benchmark exchange rate to guide the market exchange rate, and further rationalize the relationship between the two.
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