The Central Parity Of RMB Is Very Important To The Market Exchange Rate.

In August 11th, the Central Bank of China unexpectedly lowered the central parity price by more than 1000 points, and the RMB depreciated by 1.8%.

Bloomberg said that this move is more about the recognition of the weak market price, rather than to enhance export competitiveness, although foreign exchange traders speculate that China will further devalue the renminbi to boost exports, thereby lowering the RMB exchange rate price lower.

The Central Bank of China also explained that in view of the fact that China's goods trade continued to maintain a large surplus, the effective exchange rate of RMB was stronger than that of many currencies in the world, and it was somewhat deviated from market expectations.

The Chinese authorities have not tried to fix the RMB exchange rate at a level.

On the contrary, they adjust the middle price according to the market price.

The Central Bank of China said at that time that it would further improve the quotation of the central parity of the RMB exchange rate from now on, and that the intermediate price will refer to the closing rate of the interbank foreign exchange market of Japan.

Bloomberg said that if the authorities fight against the market by raising the middle price, efforts to push the yuan to become a reserve will be wasted.

Many institutions such as HSBC and Guotai Junan at that time indicated that the decision of the central bank should not be regarded as a deliberate devaluation strategy or a foreign trade situation, but to promote the marketization of exchange rate and RMB.

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HSBC believes that this is an important development in the pition from RMB to free floating currency.

Another important consideration for improving the quotation of intermediate prices is that the central bank will accelerate its reform to increase the opportunity for RMB to join the SDR.

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For Americans accustomed to floating exchange rates, this is no big deal.

Chandler writes that foreign exchange futures are traded on livestock futures in the Chicago Mercantile Exchange.

On the contrary, the RMB exchange rate has a highly regulated tradition.

"Most countries can not accept the principle of free currency like Bacon."

Chandler says.

"No one officially knows how China got the middle price.

It's still a black box.

It is said that a total of more than twelve banks are involved in many banks, including foreign banks.

"But there seems to be other factors in its role," he said.

"My feeling is that they have" designed "to make the middle price look right.

Since they seem to be right, they can "design" the substantial factors behind them.

China has not been a smooth sailing in recent times, but the authorities have successfully completed a major mission, despite the fact that the volatile market may obscure the significance of the change: the market price of the renminbi is in line with the official central parity.

Marc Chandler, head of the foreign exchange division of Brown Brown Brothers Harriman, said that before the International Monetary Fund (IMF) considered the renminbi as a reserve currency like the US dollar, Japanese yen, pound sterling and euro, it is a crucial step to match the central parity of RMB with the market price.

Raising the image of the renminbi remains a top priority for the Chinese government, even in the recent currency market turmoil.

In order to become a world financial power, China is fighting a protracted war.

The lower figure drawn by Peng Bo shows that since the end of 2014, the spread between the RMB market price and the central price has begun to widen.

This is worrying the Chinese authorities, because the fixed exchange rate (that is, the middle price) should be the price that the market participants can trade at any time according to IMF.

However, this is not the case.