What will be the impact of the RMB exchange rate approaching the era of 7 yuan against the US dollar?

What will be the impact of the RMB exchange rate approaching the era of 7 yuan against the US dollar?

Bidirectional fluctuation of exchange rate is a normal:

Liu Guoqiang, Vice President of the People's Bank of China, said recently that China's foreign exchange market is operating normally and cross-border capital flows are orderly. Although the spillover effect of the US monetary policy has an impact, the impact is controllable. This is due to the fact that the fundamentals of China's economy have not changed for a long time and its economic resilience is relatively strong; In addition, thanks to China's exchange rate mechanism, the reform of our exchange rate system based on market supply and demand has been deepened, macro prudential management has been improved, and the elasticity of exchange rate has also been significantly enhanced, so that we can better play the role of adjusting the macro-economy and the automatic stabilizer of the balance of payments.

Liu Guoqiang believes that this is a long-term trend., But the position of the exchange rate is uncertain. Don't gamble on a certain point.

In response to exchange rate fluctuations, the central bank has recently released a signal to stabilize the exchange rate. On September 5, the official website of the People's Bank of China announced that, in order to improve the ability of financial institutions to use foreign exchange funds, from September 15, 2022, the reserve requirement ratio for foreign exchange deposits of financial institutions will be lowered by 2 percentage points, that is, from the current 8% to 6%.

Wen Bin, Chief Economist of China Minsheng Bank, said that the reduction of the reserve requirement ratio for foreign exchange deposits of financial institutions means that the reserves paid by domestic financial institutions for foreign exchange deposits are reduced, which helps to increase the liquidity of U.S. dollars in the market, improve the ability of financial institutions to use foreign exchange funds, and is conducive to the stability of the RMB exchange rate.

In horizontal comparison, the RMB is still a strong currency:

Liu Guoqiang, Vice President of the People's Bank of China, mentioned that because China is an open economy, the RMB exchange rate will inevitably be affected by various factors. Recently, the US has increased its monetary policy, and the US dollar has appreciated by 14.6% since this year. Against the background of the appreciation of the US dollar, other reserve currencies in the SDR basket have significantly depreciated against the US dollar, and the RMB has also depreciated by about 8%, but compared with other non US dollar currencies, The depreciation is the smallest.

Luo Zhiheng, chief economist of Yuekai Securities, believes that the exchange rate should be viewed rationally. From a global perspective, the RMB is still a strong currency. He mentioned that exchange rate is the price comparison between two currencies. The devaluation of the RMB exchange rate against the US dollar only represents the relative strength between the RMB and the US dollar. It may be that the RMB is stronger and the US dollar is stronger, or the US dollar is weaker and the RMB is weaker, or it may be between the two extreme situations, which is closer to the first situation at present.

From the perspective of the depreciation range of the RMB against the US dollar exchange rate, whether since the beginning of the year or since the rapid rebound of the US dollar index on August 11, the depreciation range of the RMB exchange rate is smaller than the appreciation range of the US dollar index, as well as the depreciation range of the Thai baht, the euro, the Korean won and the Japanese yen.

No need to worry about "breaking 7"

Experts said that although it was not ruled out that the RMB exchange rate against the US dollar would "break 7", there was no need to worry too much.

Hu Qimu, the chief researcher of Sinosteel Economic Research Institute, said that under the background of the strengthening of the dollar index, the "breaking seven" of the RMB exchange rate would strengthen the psychological expectation of RMB devaluation, but the integer threshold of the foreign exchange rate was not a landmark parameter to judge the overall economic situation, and the reference weight was not heavy. In the past two years, the RMB exchange rate against the US dollar also broke 7, but it returned to the "6" era after a short period of time. The sharp fluctuation of the exchange rate, excessive depreciation or appreciation are not conducive to economic development.

Bai Wenxi, chief economist of IPG China, mentioned that exchange rate fluctuations have a great impact on foreign trade enterprises. It is suggested that foreign trade enterprises, on the one hand, should adjust the settlement time and currency to deal with the risk of exchange rate fluctuations; On the other hand, foreign exchange futures can be used to hedge risks. (with deletion)

This article originates from China.com Finance