Sino-Singapore Jingwei Client, October 12, according to data from the China Foreign Exchange Trading Center, on the 12th, the central parity of RMB against the US dollar reported 6.7126, an increase of 670 basis points.
Source: China Foreign Exchange Trading Center
During the same period, the onshore renminbi fell 133 basis points against the U.S. dollar at 6.7268.
Earlier today, the offshore renminbi fell below the 6.74 mark against the US dollar, falling more than 500 points in the day.
On the news, according to the announcement issued by the central bank on October 10, it has decided to lower the foreign exchange risk reserve ratio for forward foreign exchange sales from 20% to 0 starting from October 12.
The central bank stated that since the beginning of this year, the RMB exchange rate has been floating in both directions based on market supply and demand, with increased flexibility, stable market expectations, orderly cross-border capital flows, stable operation of the foreign exchange market, and a balanced market supply and demand.
The central bank also stated that the next step will continue to maintain the flexibility of the RMB exchange rate, stabilize market expectations, and maintain the basic stability of the RMB exchange rate at a reasonable and equilibrium level.
Forward foreign exchange sales business is a kind of exchange rate hedging derivative products provided by banks to enterprises.
In 2018, affected by trade frictions and changes in the international foreign exchange market, the foreign exchange market showed signs of pro-cyclical fluctuations. In order to prevent macro financial risks, promote the stable operation of financial institutions, and strengthen macro-prudential management, the central bank has decided to start from August 6, 2018. Starting from today, the foreign exchange risk reserve ratio for forward foreign exchange sales will be adjusted from 0 to 20%.
Regarding the reduction of the foreign exchange risk reserve ratio for forward foreign exchange sales to 0, Wen Bin, chief researcher of China Minsheng Bank, said that the foreign exchange risk reserve ratio is a counter-cyclical adjustment tool. The adjustment can prevent excessive appreciation or devaluation of the RMB. Two-way fluctuations in the exchange rate of RMB against USD at a reasonable and equilibrium level.
Looking back on the first trading day after the National Day holiday (October 9), the RMB exchange rate rose strongly. Onshore RMB rose nearly 1,100 points against the US dollar. Both onshore and offshore RMB rose above the 6.70 mark, setting a new high since April 2019 .
Wang Youxin, a researcher at the Bank of China Research Institute, believes that after the National Day, the renminbi has risen strongly above 6.7. Although exchange rate appreciation can reduce import costs, stabilize cross-border capital flows and boost capital markets, the rate of appreciation is also to a certain extent. It hurts the already fragile entities and export sectors, and partially restrains the economic recovery.
At this time, lowering the risk reserve ratio for forward foreign exchange sales and reducing the cost of enterprises' forward foreign exchange purchases will help increase the demand for foreign exchange purchases. To a certain extent, the rate and speed of exchange rate appreciation will be smoothed, and exchange rate stability and two-way fluctuations can be better realized.
It is worth mentioning that on the same day that the central bank issued an article (October 10), the governor of the central bank, Yi Gang, wrote an article in the "China Finance" magazine, stating that the stability of the currency should be maintained and economic growth should be promoted; Balance and adhere to the market-based RMB exchange rate system.
Yi Gang emphasized that in recent years, the central bank has focused on grasping the relationship between the expansion of the financial industry, the reform of the RMB exchange rate formation mechanism, and monetary policy in accordance with changes in domestic and foreign situations.
Since the reform of the RMB exchange rate formation mechanism in July 2005, after the once-in-a-century international financial crisis, Sino-US economic and trade frictions, and the new crown pneumonia epidemic, the RMB exchange rate against the US dollar has appreciated by about 21%, and the nominal effective exchange rate calculated by the Bank for International Settlements has appreciated by about 34%, and the real effective exchange rate has appreciated by about 47%.
Thanks to the dual support of my country's rapid economic growth and the steady rise in the value of the renminbi, in hard currency terms, my country is firmly in the world's second largest economy, while per capita gross national income continues to grow.
According to World Bank statistics, my country's per capita gross national income rose from US$1,760 in 2005 to US$10,410 in 2019.
Nowadays, whether it is importing by enterprises, investing abroad, or traveling abroad, shopping, or studying abroad, people can deeply feel the tangible benefits brought by the basic stability of the RMB exchange rate.
CITIC Securities pointed out that the central bank’s announcement that it will lower the risk reserve ratio for forward foreign exchange sales may also indicate from the side that the central bank is not pursuing trend appreciation, and a reasonable and balanced RMB exchange rate remains the main goal.
Regarding the follow-up renminbi trend, CITIC Securities believes that the renminbi exchange rate may still appreciate further in the short term, but at the same time, the risk of exchange rate correction should still be prevented.
(Zhongxin Jingwei APP)