Further Promote &Nbsp Reform And Enhance RMB Exchange Rate Flexibility

The spokesman of the people's Bank of China issued a statement on 19 July, saying that "further reform of the RMB exchange rate formation mechanism and enhancement of RMB exchange rate flexibility".

According to the domestic and international economic and financial situation and the situation of China's balance of payments, the people's Bank of China decided to further promote the reform of the RMB exchange rate formation mechanism and enhance the flexibility of RMB exchange rate.

Since July 21, 2005, China has begun to regulate and manage the floating exchange rate system based on market supply and demand and reference to a basket of currencies.

Over the past few years, the reform of the RMB exchange rate formation mechanism has been carried out in an orderly way, achieving the desired results and playing a positive role.

At the height of the international financial crisis, the currencies of many countries depreciated sharply against the US dollar, while the RMB exchange rate remained basically stable. It played an important role in resisting the international financial crisis and made a great contribution to the recovery of the Asian and global economy. It also demonstrated our efforts to promote the global economic balance.

With the gradual recovery of the global economy, the foundation for China's economic recovery has been further consolidated, and the economic operation has stabilized. It is necessary to further promote the reform of the RMB exchange rate formation mechanism and enhance the flexibility of RMB exchange rate.

The central bank said that it is an opportune time to further push forward the reform of the RMB exchange rate.

First, the foundation for China's economic recovery has been further consolidated, and the economic operation has stabilized. This provides a favorable opportunity for further reform of the RMB exchange rate formation mechanism.

Two, our country is speeding up the adjustment of economic structure and changing the way of development. The outbreak of the international financial crisis has made this task more important and urgent.

The reform of exchange rate formation mechanism is conducive to promoting economic restructuring and improving the quality and efficiency of development.

The three is to further enhance the elasticity of RMB exchange rate and achieve two-way floating. It is also the need to improve the initiative and effectiveness of macroeconomic regulation and control, and to cope with external shocks under different scenarios.

The central bank points out that under the current pattern of trade and capital diversification, it is not appropriate to measure the RMB exchange rate solely on the basis of US dollar. Instead, we should shift from bilateral exchange rate to multilateral exchange rate, pay more attention to the change of basket exchange rate, and look at the exchange rate of RMB with the change of RMB relative to a basket of currencies.

With the continuous improvement of opening up, China's major economic and trade partners have shown an obvious trend of diversification.

1-5 months ago this year, five trade partners (EU, USA, ASEAN, Japan and Hongkong region) accounted for 16.3%, 12.9%, 10.1%, 9.4% and 7.5% of China's import and export value respectively.

At the same time, capital exchanges also show diversified and multi regional characteristics.

Against this background, if the RMB exchange rate is pegged to the single currency change, it will not meet the needs of diversification of trade and investment currency, nor can it reflect the actual level of exchange rate.

The central bank stressed that the current RMB exchange rate does not exist on the basis of significant fluctuations and changes.

At present, China's imports and exports are becoming more balanced. In 2009, the ratio of China's current account surplus to GDP has dropped significantly. This year the proportion has dropped further, and the balance of payments has been further approaching the equilibrium state.

The people's Bank of China will continue to dynamically manage and regulate the RMB exchange rate fluctuation in accordance with the floating interval of the announced foreign exchange market, raise the level of regulation and control, improve the management of foreign exchange, maintain the basic stability of the RMB exchange rate at a reasonable and balanced level, and maintain macroeconomic and financial market stability.

China will actively and effectively implement macroeconomic policies to promote economic restructuring and change the way of development, steadily push forward all reforms, and provide a favorable policy environment for the stability of RMB exchange rate.