Will the RMB exchange rate continue to strengthen?

　　Yao Jin

　　In the two weeks since the beginning of the year, the RMB exchange rate against the US dollar continued to show a slight appreciation trend.

In the face of the sudden narrowing of the Sino-US interest rate gap, the RMB exchange rate remained strong.

Under such a trend, will the RMB exchange rate continue to strengthen?

　　In 2021, the RMB exchange rate will remain basically stable at a reasonable and balanced level in a complex environment.

Although non-U.S. currencies represented by emerging markets fell almost across the board, the renminbi rose out of an independent market and appreciated slightly by 2.3% throughout the year.

　　The reason why the renminbi can go out of the independent market is of course related to multiple factors such as the continuous rise of China's economy in the world, China's continuous promotion of high-level financial opening up, which makes renminbi assets more attractive, and the deterioration of the US fiscal and trade twin deficits that damage the credit of the US dollar. The driving force is still from the strong export.

In 2021, my country's exports will be better than market expectations almost every month, resulting in a high trade surplus and an increase in foreign exchange inflows, supporting the strong performance of the RMB.

　　Looking forward to 2022, although the fundamentals of my country's economic resilience and long-term improvement will not change under pressure, and the pace of opening to the outside world will not slow down, whether the RMB exchange rate can continue to strengthen depends on many factors comprehensive effect.

　　Specifically, China's exports are still resilient, and the trade surplus will remain at a high level, which will form a strong support for the RMB exchange rate; the global attractiveness of RMB assets is still strong, and the continuous net inflow of overseas funds into China will also support the RMB exchange rate.

At the same time, the tightening of the Fed's monetary policy may lead to a phased strengthening of the US dollar and a narrowing of the interest rate gap between China and the United States, and the RMB will also face certain depreciation pressure.

In addition, considering that the regulators emphasize the internal and external balance of the exchange rate, they will still use the foreign exchange reserve ratio, counter-cyclical factors and other policy control tools to guide market expectations and promote the formation of a two-way fluctuation pattern of the RMB exchange rate against the US dollar.

　　At present, the global economic and financial situation is complex and changeable. It is expected that the RMB exchange rate will continue to have the characteristics of depreciation and appreciation and two-way fluctuations in 2022.

The flexibility of the RMB exchange rate will be further enhanced, and the probability of unilateral continuous appreciation or depreciation is not high.

　　For enterprises, establishing the concept of exchange rate risk neutrality and adhering to the exchange rate risk management principle with "value preservation" rather than "value added" as the core is still the "positive solution" to answer the question of exchange rate risk management.

For financial institutions, they should actively provide exchange rate hedging services for small, medium and micro enterprises to reduce their exchange rate hedging costs.

Financial institutions should strengthen their own foreign exchange business risk management, neither helping enterprises to "speculate foreign exchange", nor should they themselves "speculate foreign exchange", they should consolidate the institutional foundation and jointly build a professional and standardized foreign exchange market.

Market players such as enterprises and financial institutions can better deal with external shocks only if they adhere to the concept of risk neutrality.