The RMB exchange rate has once again become the focus of the market. The central bank showed the attitude of stabilizing the RMB exchange rate with two practical actions. First, it signed a huge amount of Sino-Japanese bilateral currency swap agreement with the Bank of Japan. Second, the Vice President of the Central Bank and the Director of the State Administration of Foreign Exchange Pan Gongsheng solemnly warned against the short-selling of the RMB.
As of 16:30 on October 29, the closing price of the RMB against the US dollar was reported at 6.9560 yuan, a rebound from the previous trading day. On the same day, the central parity of the RMB against the US dollar was 6.9377 yuan, up 133 basis points.
In the second quarter of this year's monetary policy report, the central bank disclosed that as of the end of June, under the bilateral local currency swap agreement signed by the central bank and the overseas monetary authorities, the overseas monetary authorities used the RMB balance of 32.66 billion yuan, and the central bank used foreign currency balance equivalent to 927 million US dollars. It has played a positive role in promoting bilateral trade and investment.
On October 26, the central bank issued a message saying that it has signed a Sino-Japanese bilateral currency swap agreement with the Bank of Japan to maintain financial stability in the two countries and support the development of bilateral economic and financial activities. The agreement is 200 billion yuan / 340 billion yen. The agreement is valid for three years and can be extended by mutual agreement.
This is a five-year interval, and China and Japan restarted currency swaps again. The Sino-Japanese bilateral currency swap agreement began in March 2002, and the two parties did not renew after the expiration of the September 2013 agreement. Before the expiration, the currency exchange of the two countries was capped at about 330 billion yen. The scale of the bilateral currency swap agreement between China and Japan has been significantly enlarged.
At the same time, the central bank also signed a memorandum of cooperation with the Bank of Japan to establish a RMB clearing arrangement in Japan. The central bank said that the establishment of Japan's RMB clearing arrangement will facilitate the use of RMB for cross-border transactions by Chinese and Japanese companies and financial institutions, and further promote bilateral trade and investment facilitation.
According to statistics, as of now, the balance of the effective local currency swap agreement signed by the central bank and the central banks or monetary authorities of 38 countries and regions is 3.266 trillion yuan.
When attending the State Council policy briefing last Friday, Pan Gongsheng pointed out that the devaluation of the renminbi this year was mainly due to the US dollar interest rate hike in the international financial market, the US dollar index (96.6740, -0.0120, -0.01%), the international financial market disruption and The result of a combination of factors such as trade friction.
The author believes that the steady expansion of the “friend circle” of the RMB swap agreement will help reduce the impact of dollar volatility on the local currency and maintain the stability of the currency of the renminbi. The overall stability of the RMB exchange rate has a close relationship with the steady expansion of the RMB swap agreement “friend circle”.
Despite the depreciation of the RMB exchange rate, Pan Gongsheng believes that the RMB is still a relatively stable currency compared with the currencies of developed economies and the currencies of major emerging economies.
"For those who are trying to short the renminbi, we have handed over a few years ago and are very familiar with each other. I think we should all remember it." Pan Gongsheng warned these institutions.
Beginning in 2015, short-selling RMB transactions were prevalent in foreign institutions. Beginning in 2016, the short-selling market was more aggressive in the offshore market, which led to a rapid expansion of the exchange rate between the two sides of the renminbi. At the beginning of 2017, the central bank first strengthened the management of cross-border capital flows. Subsequently, by tightening the liquidity of offshore renminbi, the cost of capital was raised, and the short positions were forced to close and close positions. The short tramples triggered rapid de-leverage, resulting in a large RMB. rise.
In this process, the central bank and the State Administration of Foreign Exchange have accumulated a wealth of experience and policy tools to take necessary and targeted measures to combat the short-selling of the renminbi according to changes in the situation.
In order to maintain the stability of the RMB exchange rate, the central bank has taken some positive measures to stabilize its expectations, and has repeatedly promised that it will not engage in competitive devaluation and will not use the RMB exchange rate as a tool to deal with trade disputes. In terms of stability expectations, the central bank has continuously improved the mechanism of the RMB exchange rate marketization and maintained the flexibility of the exchange rate. In response to the procyclical behavior of the foreign exchange market, the central bank has and will continue to actively adopt macro-prudential policies and other measures to stabilize the foreign exchange market.
At the same time, the fundamentals of the Chinese economy are stable, the macro leverage ratio is basically stable, and the financial and financial risks are generally controllable. This year, the international balance of payments is also generally balanced, and foreign exchange reserves are sufficient. These factors provide a fundamental support for the RMB exchange rate to remain basically stable.
Therefore, as in the past, those forces who are bent on short-selling the renminbi will eventually lose their sand. The renminbi “friend circle” is expanding steadily, shorting the yuan will definitely smash the sand