The Trend Of RMB Exchange Rate Is Again "Monkey Moving".

The sharp drop in the exchange rate against the US dollar has made many people panic. Many trade friends anxiously asked me how to hedge exchange rate risk.

Even my assistant began to feel uneasy, because in the past few years, she changed a large part of her savings from Hong Kong dollars into Renminbi, and kept a close eye on the appreciation of the renminbi.

They are so unprepared because the renminbi has appreciated almost all over the past more than 10 years, so few people will consider the possibility of devaluation of the renminbi, nor have they developed the habit of actively managing exchange rate risk.

I remember that in 2014, when I was writing "safety belt" and "meeting the two-way fluctuation of RMB", I once said: the era of unilateral rise of RMB exchange rate has gone forever, and the demand for managing RMB exchange rate risk will become increasingly urgent.

Today, this trend is very clear. With the improvement of the international status of RMB, the RMB exchange rate formation mechanism will become more market-oriented, and two-way fluctuation will become a new normal. All Renminbi users and investors need to fasten the "safety belt" and make full exchange rate risk management.

Why do we say so? First, the central bank's determination to push forward the reform of the RMB exchange rate market is very firm. In recent years, the central bank has relaxed the RMB exchange rate control and loosened the fluctuation range of RMB exchange rate.

Throughout the world, any currency that has been marketization of exchange rate has risen or depreciated, and the renminbi is no exception.

Just as we need to adapt to the big fluctuations in the international currencies such as the US dollar, euro, yen and so on, we should also get used to such a new normal for the RMB.

In the financial market, exchange rate risk is not terrible.

Secondly, as the RMB continues to internationalize, more and more countries and regions begin to use and hold renminbi, and the supply and demand side of the RMB exchange rate market is increasing.

Volatility must be more flexible.

In November 30, 2015, the International Monetary Fund (IMF) announced that it would add renminbi to the basket of SDR currencies from October 1, 2016.

The inclusion of Renminbi in the SDR currency basket symbolizes the IMF's recognition of the internationalization process of the RMB. It also means that the main central banks and investors in the future need to gradually increase the allocation of RMB assets.

Thirdly, in the reform of the RMB exchange rate marketization, the central bank has repeatedly stressed that the RMB exchange rate is no longer fixed to the dollar exchange rate, but to maintain the basic stability of a basket of currencies in a reasonably balanced water balance.

In December 11th last year, the China foreign exchange trading center first released the CFETS RMB exchange rate index calculated on the basis of the weighted average exchange rate of RMB against 13 foreign currencies, which means that the RMB exchange rate can no longer be looked at only by the renminbi's exchange rate with any other currency.

When the renminbi appreciates, Hongkong can vigorously provide all kinds of assets denominated in Renminbi, because appreciation is conducive to holding renminbi assets. When the RMB exchange rate depreciates, Hongkong can provide all kinds of RMB debt products vigorously, because depreciation is beneficial to the borrowers of the renminbi.

Debt and increasing Renminbi debt is an inevitable reaction of the market in the stage of RMB depreciation.

At the same time, as the largest offshore renminbi center in the world, Hongkong can vigorously develop the RMB exchange rate and interest rate products. This will not only provide more impetus for the internationalization of RMB, but also improve the RMB ecosystem in Hongkong, and become the most important offshore RMB pricing center in the world.

The meaning of the central bank is obvious: as a kind of

It is the responsibility of the renminbi to maintain its currency value basically stable. However, there is no obligation to maintain a stable exchange rate for a certain currency. The renminbi has grown up and will not follow the pace of the US dollar or any other single currency in the future. It is ready to show its independence.

This also indicates that although the RMB exchange rate will remain basically stable against a basket of currencies in the future, the elasticity of exchange rate against the US dollar is likely to exceed our expectations, and the risk of managing the exchange rate between the RMB and the US dollar is particularly urgent.

For Hongkong, under the background of RMB internationalization, the two-way fluctuation of RMB exchange rate not only brings challenges, but also brings new historical opportunities.

Over the past few days, offshore renminbi price volatility has been more intense than the onshore market. This first shows that offshore market needs more exchange rate risk management. At the same time, it shows that the depth and diversification of RMB valuation products in offshore markets are far from enough, so that a small policy change often leads to excessive fluctuations in offshore markets.

In this regard, the Hongkong exchange has taken the first step in 2012 - the introduction of RMB currency futures, which has become the most active RMB futures in the global exchange market.

Recently, due to the increase in the RMB exchange rate, the volume and position of RMB currency futures continued to rise. Among them, the open positions reached a record high of 29352 on 11 January, and in January 7th the volume of new currency reached two new 6425 (nominal value of US $625 million).

However, we know that this distance is still far from meeting the needs of the market.

Finally, once again, the RMB exchange rate has entered a two-way fluctuation era.

If you are an importing and exporting trader or a Chinese entrepreneur who often borrows foreign currency, you must strengthen the management of exchange rate risk and fasten your seat belt. If you are a QFII or QDII fund manager, the era of not wearing a seat belt is over. If you are an asset management institution through two-way investment between Shanghai and Hong Kong, you may have to ask yourself frequently: fasten your seat belt?