The RMB exchange rate is approaching the era of 7 yuan, what happened? Is it "broken 7"?

　　China News Service, September 8 (Chief Financial Reporter Li Jinlei) The exchange rate of the RMB against the US dollar is approaching the era of 7 yuan.

Whether the RMB will "break 7" has attracted attention.

　　The People's Bank of China authorized the China Foreign Exchange Trade System to announce that the central parity rate of RMB in the inter-bank foreign exchange market on September 7, 2022 is: 1 US dollar to RMB 6.9160, a decrease of 64 basis points from the previous trading day.

　　In addition, the exchange rate of the onshore RMB against the U.S. dollar fell below the 6.97 yuan mark, and the offshore RMB exchange rate against the U.S. dollar once fell below the 6.99 yuan mark, which is close to "breaking 7".

Why did the RMB exchange rate depreciate?

　　The fall in the RMB exchange rate is affected by a variety of factors, the recent main reason being the adjustment of the U.S. overweight monetary policy.

　　Data shows that the US dollar has appreciated by 14.6% this year. Against the background of the appreciation of the US dollar, other reserve currencies in the SDR basket have depreciated significantly against the US dollar. From January to August, the euro has depreciated by 12%, the pound has depreciated by 14%, and the yen has depreciated. 17%, and the RMB depreciated by 8%.

　　Wang Youxin, a senior researcher at the Bank of China Research Institute, said that due to factors such as the Fed's continued rate hike process and the weakening of the euro, the external U.S. dollar index continued to rise, putting pressure on the RMB exchange rate to adjust.

　　But compared with other non-dollar currencies, the depreciation of the renminbi is the smallest.

Liu Guoqiang, deputy governor of the People's Bank of China, said at the State Council's regular policy briefing on the 5th that the depreciation of the renminbi is relatively small, and in the SDR basket, it should be said that the renminbi appreciates against non-dollar currencies in addition to the depreciation against the US dollar, rather than saying that Other currencies in the SDR basket are also depreciated.

In the SDR currency basket, a basic situation is that the US dollar appreciates, and the RMB also appreciates, but the appreciation of the US dollar is larger than that of the RMB.

Therefore,

A basket of currencies infographic.

What is the impact of RMB devaluation?

Generally speaking, after the devaluation of the RMB, studying abroad, shopping, etc. will increase the cost, while imports will be under pressure, but it is a good thing for exports.

　　According to data released by the General Administration of Customs on the 7th, in the first eight months of this year, my country's total import and export value was 27.3 trillion yuan, an increase of 10.1% over the same period last year.

Among them, exports were 15.48 trillion yuan, an increase of 14.2%; imports were 11.82 trillion yuan, an increase of 5.2%.

　　Bai Ming, deputy director of the International Market Research Institute of the Ministry of Commerce, told Zhongxin Finance that the devaluation of the local currency will help export companies increase export revenue, improve competitiveness and profitability.

However, the devaluation of the RMB exchange rate is also a double-edged sword.

Export companies rely on the depreciation of the RMB exchange rate to increase their income, but if they use too many imported raw materials and components, they may also increase their expenditures due to the depreciation of the RMB exchange rate.

　　Wen Bin, chief economist of China Minsheng Bank, told Zhongxin Finance that for China's import and export and foreign trade enterprises, they should not bet on the rise and fall of the renminbi, but to do a good job in the management of exchange rate risks to ensure the normal production and operation of enterprises.

Is the RMB "breaking 7"?

　　For the future trend of the RMB exchange rate, the current market is generally concerned about whether it will fall below the integer mark of 7.

　　CITIC Construction Investment pointed out that in the context of the obvious increase in the linkage between the RMB and the US dollar, the analysis of the future trend of the RMB exchange rate depends more on the US dollar index.

Therefore, the renminbi is under pressure to depreciate or even "break 7", but the impact of this round of devaluation on capital flows is not strong, and it is not expected to weaken significantly.

　　Zhong Zhengsheng, chief economist of Ping An Securities, believes that the RMB exchange rate in this round has the possibility of "breaking 7".

Compared with the position of the US dollar, the current position of the RMB exchange rate is still significantly stronger.

However, the point of the RMB exchange rate itself is not the most important, and whether the situation of my country's cross-border capital flow is stable is the essence of the problem.

After two rounds of RMB "breaking 7" in August 2019 and early 2020, the 7 point itself is not easy to cause the so-called overshoot.

　　Liu Guoqiang, deputy governor of the central bank, believes that the long-term trend of the renminbi should be clear, and the world's recognition of the renminbi will continue to increase in the future, which is a long-term trend.

But it should be like this in the short term.

RMB and US dollar infographic.

Photo by China News Service reporter Li Jinlei

What if "Broken 7"?

　　In fact, since the "811" exchange rate reform in 2015, the RMB exchange rate has "broken 7" in 2019 and 2020.

　　On August 5, 2019, the relevant person in charge of the People's Bank of China said in response to the RMB "break 7" that the

　　Guan Tao, Global Chief Economist of Bank of China Securities, believes that

Now, both the government and the market have greatly increased tolerance and adaptability to two-way fluctuations and wide fluctuations in the exchange rate.

　　Since September 15, the central bank will lower the foreign exchange deposit reserve ratio of financial institutions by two percentage points, that is, the foreign exchange deposit reserve ratio will be lowered from the current 8% to 6%.

This is the second foreign exchange rate cut this year.

Experts believe that the central bank's move sends a positive signal to the market, which is conducive to stabilizing the RMB exchange rate expectations and avoiding irrational overshoots.

(Finish)