A New Map Of Maintaining RMB Exchange Rate Stability Against A Basket Of Currencies

The central bank has formed two bottom lines for the intervention policy of RMB exchange rate. First, on the basis of no significant depreciation of the RMB, the RMB exchange rate formation mechanism is gradually pushed from the US dollar to a basket of currencies. Two, the RMB exchange rate will not be tolerated.

In his view, with the Yuan's accession to the SDR basket of currencies in September this year, the central bank will not tolerate the huge gap in the RMB exchange rate between the two countries.

"In fact, there is another intention of the central bank to intervene in the foreign exchange market, which is to maintain the stability of the RMB exchange rate against a basket of currencies."

Zhang Gang pointed out that, as the RMB exchange rate fell sharply last week, there were institutional estimates that the CFETS exchange rate index of a basket of currencies could be less than 100, which means that the exchange rate of RMB against a basket of currencies has depreciated in a certain range. The central bank, through intervening in the foreign exchange market, will send a strong signal to the market to maintain a stable RMB exchange rate against a basket of currencies.

According to Joseph E. Stiglitz, the winner of the Nobel prize in economics and former World Bank senior vice president, the Central Bank of China maintained a basket of RMB against the E..

Exchange rate stability also has its own profound consideration.

After all, under the expectation that the US dollar will continue to raise interest rates, the renminbi's policy of pegging the US dollar exchange rate is becoming inappropriate. First, the RMB passively follows the appreciation of the US dollar, which will have a negative impact on the competitiveness of China's commodity exports. Two, even if the RMB stays strong with the US dollar, taking into account the current international status of the US dollar, many international investment institutions will still regard the US dollar as the first choice for the safe haven currency; and the three is that the central bank will have to consume a large amount of foreign exchange reserves to maintain the strong appreciation of the RMB exchange rate in the expectation of the depreciation of the RMB due to the appreciation of the US dollar.

Although the Central Bank of China has been promoting market-oriented pricing of the RMB exchange rate, if international speculative capital has repeatedly sold out the renminbi, it will lead to a disorderly depreciation of the RMB and the invasion of the central bank.

The bottom line of the policy is that the central bank is likely to restart the intervention market again, forcing speculative capital to come out.

Today, the central bank will focus on the RMB exchange rate formation mechanism.

To keep pace with a basket of currencies and maintain a stable exchange rate for a basket of currencies is in line with the internationalization strategy of the renminbi.

At present, there is a lack of a "safe" currency in the international market. Although the appreciation of the US dollar is always good, the international investment organization is also worried that the US Federal Reserve will slow down the pace of raising interest rates, which may lead to a significant fluctuation in the US dollar exchange rate. The euro will face a higher pressure of active depreciation because of the slowing economic recovery. If the RMB can maintain a stable exchange rate against a basket of currencies, it will make up for the vacuum and become a new haven for the global central bank and large asset management institutions to maintain assets.