The Central Bank Can Moderately Reduce The Middle Price Of The Exchange Rate.

Recently, the RMB has continued to depreciate against the US dollar.

The market will discuss the future trend of RMB with the international currency devaluation competition and RMB internationalization strategy.

Yu Yongding, a member of the former central bank's monetary policy committee, told reporters that the internationalization of the renminbi is not China's monetary policy objective.

China's macroeconomic goals include China's monetary policy objectives and China's financial stability.

It is pointed out that whether or not to allow the depreciation of the RMB should consider whether it is conducive to the optimal allocation of China's resources across the border and across the clock.

The exchange rate policy should be determined according to the current capital outflow and the impact on China's economy.

The devaluation of the renminbi is the result of capital outflow and the balance of capital outflow.

The more depreciation, the higher the cost of capital outflow.

Devaluation itself is good for containment of capital outflow.

Yu Yongding said at the same time: the central bank should prevent large capital outflows and exchange rate plummeting, but in general, the market should determine the exchange rate.

The central bank can moderate the middle price of the exchange rate and expand the exchange rate.

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The advantages of this include: suppressing arbitrage activities, increasing capital flight costs, and increasing export competitiveness, thereby contributing to economic growth.

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In recent years, the central bank has been adjusting the middle price, which seems to be in a step to reverse the trend of the sharp decline of the RMB, and to tolerate the slow decline of the RMB following the market.

In particular, when the Yuan's spot exchange rate closed for the first time last Monday, the central bank raised the central parity of the RMB exchange rate on the second day, which seems to be aimed at stabilizing the fluctuation range of the RMB exchange rate.

Some economists point out that the central bank's move is to convey some policy signals to the market: it is establishing a managed RMB floating exchange rate system based on market supply and demand.

Specifically, it is the interval management of RMB exchange rate fluctuations.

Many foreign exchange traders believe that the central bank set the scope of the RMB exchange rate volatility management category, may be in the RMB against the dollar exchange rate 6.0-6.3 wide fluctuations.

In this way, it can depreciate the dollar exchange rate timely and ensure the steady recovery of export industry. Secondly, it can maintain a moderate and slow appreciation of the non US currencies such as the euro and yen, and create favorable environment for the internationalization of RMB.

However, some overseas capital does not agree with this view. They are more inclined to see a rapid devaluation of the renminbi.

An American hedge fund manager believes that the nominal and effective exchange rate of the renminbi has appreciated by 40.5% and 51% respectively since the exchange rate reform in 2005.

Now, with the strong appreciation of the US dollar and the slowdown in China's economy, capital withdrawals may be triggered, and the short-term technical revaluation of the renminbi will not be excluded in the near future.

"Over the past few years, the unilateral appreciation of the renminbi has accumulated huge offshore arbitrage funds.

Now these funds see the two-way fluctuations of the renminbi, resulting in a substantial contraction in earnings, and naturally consider changing the door.

He further pointed out that, as far as he knows, many yen to RMB arbitrage funds are beginning to withdraw.

In the past, they could enjoy 4%-5% annualized risk-free interest spread every year by borrowing yen into Renminbi. However, with the depreciation of RMB against the US dollar by about 3.1% in the past year, they found that the shift of arbitrage funds to the US dollar might get more substantial gains than the renminbi, and they began to withdraw from Renminbi assets.

In the view of the above foreign exchange traders, it is precisely the difference between overseas capital and the central bank's future trend toward the RMB exchange rate, which leads to the quotation of offshore RMB exchange rate often lower than the domestic market, thus triggering the surge of arbitrage.

However, such arbitrage may not last long because foreign capital is also afraid that the central bank will adopt exchange rate intervention measures, thereby hurting their own spreads.

He pointed out that once the RMB exchange rate has fallen below the lowest level of 6.2676 in 2014, it may make these offshore capital more pessimistic towards the future trend of RMB exchange rate and further speed up the withdrawal of capital, which will continue to lead to the widening of the foreign exchange gap within the renminbi and the emergence of more arbitrage markets.

At the close of February 2nd, the US dollar closed 6.2597 against the yuan, only a step away from its lowest level in 2014.