Official: RMB nominal effective exchange rate deposit threshold requirements

The People's Bank of China reported on the 6th that on June 30, 2016, the CFETS RMB exchange rate index was 95.02, which was 2.19% lower than that at the end of May. The RMB exchange rate indices of the BIS currency basket and the SDR currency basket were 96.09 and 95.76, respectively, compared with the end of May. The depreciation is 2.39% and 0.47%. The central bank said that the bilateral exchange rate of the renminbi against the US dollar will continue to show a two-way floating pattern based on the market supply and demand and with reference to a basket of currencies. The exchange rate of the renminbi against a basket of currencies will remain basically stable.
Judging from the situation in the first half of the year, the RMB exchange rate index depreciated slightly on the basis of maintaining basic stability. On June 30, the CFETS RMB exchange rate index depreciated by 5.86% from the end of the previous year. The RMB exchange rate indices of the BIS currency basket and the SDR currency basket were depreciated by 5.53% and 3.12% respectively from the end of the previous year. The small depreciation of the RMB exchange rate index is mainly affected by changes in market supply and demand.
The central bank said that on the one hand, the “de-leverage” of Chinese enterprises’ external debt is still continuing, and the willingness to “go out” is further warming up. On the other hand, there are still uncertainties in the Fed rate hike in the international arena, and some overseas speculative forces due to lack of effective supervision. Adding leverage to short-term Asian currencies, including the renminbi, has also brought some depreciation pressure on the renminbi exchange rate. The foreign exchange market as a whole has a situation of less than demand.
At the same time, the depreciation of the RMB exchange rate index is also related to the base period factor. The CFETS RMB exchange rate index is set at 100 at the end of December 2014. At that time, the central parity of the RMB against the US dollar was 35.2% higher than that of the 2005 exchange rate reform. The actual effective exchange rate of the BIS RMB was 47.6% higher than that of the 2005 exchange rate reform. The RMB exchange rate is at a high level and does not reflect the true equilibrium level. The callback is normal. If the RMB exchange rate index changes from a long-term perspective, such as a semi-annual, annual or even longer period, the stability of the RMB exchange rate index will increase significantly. In addition, the depreciation of the RMB exchange rate index is also slightly affected by China's price level. At present, China's inflation level is generally higher than that of the United States, and the real effective exchange rate of the RMB is subject to appreciation pressure. In order to keep the real effective exchange rate of the RMB relatively stable, there is a certain depreciation requirement for the nominal effective exchange rate of the RMB.

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