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Xinhua Commentary: China’s central bank sends clear signal on RMB exchange rate

Abstract : As the exchange rate of the Chinese currency renminbi (RMB), or the yuan, remains high against the U.S. dollar, the People's Bank of China (PBOC) has sent a series of clear signals that rapid appreciation of the yuan is not sustainable.

BEIJING, June 1 (Xinhua) — As the exchange rate
of the Chinese currency renminbi (RMB), or the yuan, remains high
against the U.S. dollar, the People’s Bank of China (PBOC) has sent a
series of clear signals that rapid appreciation of the yuan is not
sustainable.

The latest policy move came on Monday with the PBOC, China’s central
bank, raising the reserve requirement ratio for foreign currency
deposits by 2 percentage points from the current 5 percent to 7 percent,
beginning June 15. That will put pressure on the yuan to weaken.

Sheng Songcheng, a professor at China Europe International Business
School and a former director of the central bank’s Department of
Investigation and Statistics, on Sunday told Xinhua in an interview that
the RMB has likely experienced some overshooting against the U.S.
dollar, which will be unsustainable in the future and is not in line
with the domestic and international economic and financial situation.

Sheng noted that the U.S. economy is expected to rebound
comprehensively in the second half of the year, and that the dollar may
strengthen accordingly. He said RMB exchange rate appreciation cannot
offset the rise in bulk commodity prices and cannot be a tool in this
aspect, and that the current overshooting is short-term speculative
behavior.

Sheng explained that a certain level of RMB appreciation has little
impact on global commodity prices. He said the current round of bulk
commodity price hikes, a result of the relationship between supply and
demand and market speculation, cannot be suppressed through the
appreciation of the yuan.

Sheng said the unilateral rapid appreciation will no doubt hurt
China’s exporters, particularly small and medium-sized companies. It may
also hurt the real economy as unilateral rapid appreciation could
divert the attention of enterprises from business operations to
speculation of the exchange rate.

A recent national meeting on the foreign exchange market
self-regulation urged financial institutions and enterprises to adapt
themselves to exchange rate fluctuations, warning that gambling on the
exchange rate will inevitably lead to losses.

The RMB exchange rate is determined by the market. It has witnessed
ups and downs since the beginning of this year, and remained basically
stable. In the future, the trend of RMB exchange rate will continue to
depend on the market supply and demand, and the changes of the
international financial market. Two-way fluctuations of the RMB exchange
rate will become the norm.

The central bank has also stressed that the managed floating system
of the yuan’s rate, based on market supply and demand and adjusted by
reference to a basket of currencies, is an arrangement that suits China
at present and for some time in the future. Enditem

About Xinhua Silk Road

Xinhua Silk Road (en.imsilkroad.com) is the Belt and Road Initiative (BRI) portal. China’s silk road economic belt and the 21st century maritime silk road website, include BRI Policy, BRI Trade, BRI Investment, Belt and Road weekly, Know Belt and Road, and the integrated information services for the Belt and Road Initiative (BRI).

Source: Xinhua Commentary: China’s central bank sends clear signal on RMB exchange rate

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