After the central bank lowered the foreign exchange risk reserve from 20% to 0 on October 12, the foreign exchange market welcomed a big move, and the "countercyclical factor" in the quotation model of the central parity rate of RMB against the US dollar was faded out.
On the evening of October 27, the secretariat of the foreign exchange market self-discipline mechanism issued an announcement stating that since the beginning of this year, my country's foreign exchange market has been operating steadily, the international balance of payments has tended to balance, and the RMB exchange rate has been floating in both directions and increased flexibility based on market supply and demand.
It is understood that some recent quotation banks for the central parity rate of RMB against the US dollar, based on their own judgments on economic fundamentals and market conditions, have taken the initiative to fade out the use of the "countercyclical factor" in the central parity price model of RMB against the US dollar.
The secretariat of the foreign exchange market self-regulatory mechanism stated that the adjusted quotation model is conducive to improving the transparency, benchmarking and effectiveness of the mid-price quotations of quoting banks, and it is also a manifestation of the role of market entities in the foreign exchange market self-regulatory mechanism.
Since the beginning of this year, the central parity of the RMB against the U.S. dollar has appreciated by nearly 4%, the spot exchange rate of the RMB against the U.S. dollar has appreciated by 3.7%, and the offshore RMB against the U.S. dollar has appreciated by nearly 3.8%.
As a tool for adjusting the foreign exchange market, compared with foreign exchange risk reserves, the effect of countercyclical factors is more immediate from the perspective of past performance.
The countercyclical factor was unveiled on May 26, 2017. In order to appropriately hedge against procyclical fluctuations in market sentiment, the core members of the foreign exchange market self-discipline mechanism changed the quotation model of the central parity rate of the RMB against the US dollar from the original "closing price + a basket of currencies" based on market principles. "Exchange rate change" is adjusted to "closing price + basket of currency exchange rate changes + countercyclical factor".
After more than 3 years of creation, the countercyclical factor has gone through the process of returning to neutrality to restarting and then fading out.
The introduction of "countercyclical factors" effectively alleviated the procyclical behavior of the market, stabilized market expectations, and helped the RMB exchange rate to appreciate substantially in 2017.
In January 2018, as China's cross-border capital flow and foreign exchange supply and demand tended to balance, the quotation bank of the central parity rate of the RMB to US dollar exchange rate gradually adjusted the "counter-cyclical factor" to neutral based on its own judgment on economic fundamentals and market conditions .
On August 24, 2018, the China Foreign Exchange Trading Center announced that due to factors such as the strength of the US dollar index and trade frictions, some procyclical behaviors have appeared in the foreign exchange market, and the central parity price of RMB against the US dollar has restarted the "countercyclical factor".
After 26 months, the "countercyclic factor" faded out.
Starting from October 12, 2020, the central bank will lower the foreign exchange risk reserve ratio for forward foreign exchange sales from 20% to 0.
This is the first time the central bank has adjusted the foreign exchange risk reserve ratio for forward foreign exchange sales after 26 months.
To put it simply, before the adjustment, suppose a bank has signed a contract amount of 10 billion U.S. dollars for forward foreign exchange sales last month, and this month needs to pay a reserve of 2 billion U.S. dollars to the central bank, which will return it to the bank intact one year later. After the adjustment, the bank will no longer need to pay this money from October 12.
However, after the introduction of the above tools, the exchange rate of RMB against the US dollar resumed its upward trend after a brief adjustment.
In this context, the central bank will make another move, and the "countercyclical factor" will be faded out after 26 months.
In terms of market performance, after the announcement of the above news by the Secretariat of the Foreign Exchange Market Self-discipline Mechanism, the exchange rate of RMB against the US dollar has been calm in the onshore and offshore markets, and there is little fluctuation in the opening performance today.
Sun Guofeng, Director of the Monetary Policy Department of the Central Bank, stated at the central bank's press conference earlier that the slight appreciation of the RMB exchange rate is a natural reflection of my country's economic orientation.
my country has taken the lead in controlling the epidemic and economic and social development has resumed. The International Monetary Fund predicts that my country will be the only major economy that will achieve positive economic growth this year.
The export situation is good. Long-term overseas funds including central banks have flowed into RMB assets in an orderly manner. It is normal for the RMB exchange rate to appreciate due to market supply and demand. Market supply and demand play a decisive role in exchange rate formation under a managed floating exchange rate system. The intended meaning of the role.
The Paper Chen Yueshi