For The First Time Since The Reform. What Does "RMB 7" Mean?

Today (August 5th), there is a big news coming from the foreign exchange market. The yuan and the FOB price of both yuan and the US dollar broke 7 and fell to 7.1057.

RMB broke 7 started at around 9:16 in the morning. At that time, the offshore RMB dollar fell below the 7 pass and the highest value was 7.0392. Almost 15 minutes later, on the shore, the yuan also started breaking 7, the highest reported at 7.0262. It has hit a new low since 2008.

The central bank answered the reporter's question about why the RMB exchange rate broke 7.

1, influenced by unilateralism and protectionist measures and the expectation of China's tariff increases, the RMB exchange rate has depreciated against the US dollar today, breaking through 7 yuan, but the RMB has remained stable and strong for a basket of currencies. This is a reflection of market supply and demand and international exchange market volatility.

2, in recent years, in response to exchange rate fluctuations, the PBC has accumulated rich experience and policy tools, and will continue to innovate and enrich the control toolbox. In view of the positive feedback behavior that may arise in the foreign exchange market, we must take necessary and targeted measures to resolutely crack down on short-term speculative speculation, maintain stable operation of the foreign exchange market and stabilize market expectations. The people's Bank of China has experience, confidence and ability to maintain a basically stable RMB exchange rate at a reasonable and balanced level.

The renminbi is divided into onshore and offshore renminbi, the former being traded in the mainland and the latter being traded in Hongkong and other places. The offshore renminbi is mainly affected by the mainland's monetary policy and economic environment. Apart from the influence of mainland policy, offshore renminbi is more vulnerable to external environment. If the external environment changes, the offshore renminbi tends to fall more frequently than the onshore Renminbi.

"7" is an important gateway to the exchange rate of RMB against the US dollar. In the past, when the RMB depreciated to this threshold, it often stopped. Now the depreciation rate of RMB is nearly 1302 points, which has several major impacts.

First: the next step is to set aside room for the central bank to cut interest rates. In fact, exchange rates and interest rates represent the price of funds. One is external and the other is internal. The decline of the RMB exchange rate means that the external price of the RMB is cheaper.

For example, the price of a car in the United States is 50 thousand dollars, and the price in China is 300 thousand yuan. In theory, the Sino-US exchange rate is 6:1.

After the depreciation of the RMB, we assume that the exchange rate between China and the US will turn to 7:1, then the price of the car in the United States will be 50 thousand dollars, but it may become 350 thousand yuan in China.

A car has changed from 300 thousand to 350 thousand, indicating that prices are rising, the yuan has become cheaper and interest rates have declined.

Since the beginning of this year, the market has expected to raise interest rates on the central bank, but the central bank has not started to do so. Two, we are worried about the impact of the exchange rate. Now the renminbi's one-time depreciation has greatly reduced the pressure on the central bank to cut interest rates.

Second: the decline in the RMB exchange rate can reduce some of the overpriced housing prices in China. After a one-time devaluation of the renminbi, the possibility of a one-off fall in housing prices can be prevented.

Interest rates are internal prices. When interest rates rise, theoretically, money is more expensive, stock prices and house prices fall.

The exchange rate is the external price. When the exchange rate falls, the Renminbi denominated assets are cheap.

Very simple, if the RMB is not an unintended depreciation, after a one-time placement, there will be more hot money entering the country, where they flow to, mostly entering the property market, if not restricted or restricted.

Third: the RMB exchange rate decline, short-term will be bad for the stock market, because people are worried that the RMB will depreciate again. From the recent two years of experience, the RMB exchange rate is often related to the exchange rate in short term, often with the same rise or fall, but in the long run, it may be good, because the RMB external price decline, overseas institutional investors will get more yuan, will help to enter the domestic stock market enthusiastically.