Expanding The Floating Range Of RMB And Winning The Initiative Of Monetary Policy

At the just concluded national two sessions, Premier Li Keqiang made clear in his government work report that "maintaining the basic stability of the RMB exchange rate at a reasonable and balanced level, expanding the two-way floating rate of exchange rates and promoting the convertibility of RMB capital items", this statement is a continuation of the direction of the RMB exchange rate, so the central bank announced on Saturday that the floating rate of RMB to the US dollar should be expanded, which is not unexpected.

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< p > from the July 2005 RMB < a href= "//www.sjfzxm.com/news/index_cj.asp" > "/a >", the role of market forces in the formation of RMB exchange rate has been strengthened. However, the Central Bank of China needs to select suitable internal and external environment to reduce intervention, and now it is natural to choose to expand the fluctuation range.

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< p > from a fundamental point of view, the change of the RMB exchange rate mainly depends on the supply and demand of foreign exchange based on the balance of payments. At present, the RMB exchange rate with the US dollar has reached a "equilibrium level". In 2013, the ratio of China's current account surplus to GDP has dropped to 2.1%, and the balance of payments has been balanced.

At the same time, China's fiscal and financial risks are controllable, foreign exchange reserves are abundant, the ability to resist external shocks is strong, and the RMB exchange rate does not exist on the basis of substantial depreciation.

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< p > RMB > a href= "//www.sjfzxm.com/news/index_cj.asp" > exchange rate < /a > basic stability while market flexibility is also increasing.

Recently, the RMB dollar exchange rate continued to depreciate for many days, breaking the expectation of unilateral appreciation and creating a two-way fluctuation atmosphere.

The central bank believes that with the advance of the reform mechanism of exchange rate marketization, the future RMB will have the same elasticity as the major international currencies, and the two way fluctuation will become the norm.

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< p > according to the "Impossible Triangle" theory put forward by economist Mundell, a country can only meet two goals between the three policy objectives of the independent a href= //www.sjfzxm.com/news/index_cj.asp, monetary policy /a, capital free flow and exchange rate stability.

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< p > in order to maintain the basic stability of the exchange rate at a reasonable and balanced level, when the cross-border capital can basically flow freely, the Central Bank of China can only give up part of its monetary policy independence, so the expansion and contraction of foreign exchange funds largely determines the direction of monetary policy.

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< p > the central bank further expands the floating rate of the RMB against the US dollar, which can grasp the initiative of greater monetary policy and increase the flexibility of policy operation. It will make the central bank's policy intention more covert, and it is not easy to pin the pulse for cross-border arbitrage funds. It will play a positive role in achieving the goal of domestic monetary policy and combating cross-border capital arbitrage.

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While the Central Bank of China announced the expansion of the floating rate of exchange rate, it also announced that, in order to "further play the role of the market exchange rate, the central bank basically quit normal foreign exchange intervention and established a managed floating exchange rate system based on market supply and demand", which is the basic direction for the reform of the formation mechanism of the RMB exchange rate in the future. P

With the increasing strength of "invisible hands", the "visible hand" will be more flexible.

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