General Trend? &Nbsp; RMB Exchange Rate Volatility Widened.

Foreign media yesterday quoted an official of the people's Bank of China who did not want to be named, saying that in order to enhance the flexibility of RMB exchange rate, enhance bilateral volatility and curb unilateral speculation, the fluctuation range of the RMB against the US dollar will be expanded again from the current 5/1000 of the middle price.

The third round of Sino US strategy has just been completed.

Difficulties in unilateral appreciation

In fact, there has been a voice in academia about the expansion of the RMB exchange rate and the further improvement of the RMB exchange rate formation mechanism.

"Compared with some commodity prices and currency prices in the international market, the volatility of the RMB exchange rate is the smallest, which brings many favorable factors to speculation."

Tan Yaling, a senior analyst at the China Foreign Exchange Investment Research Institute and former Global Banking Department of China bank, said.

She pointed out that in the case of RMB appreciation expectations, smaller exchange rate volatility is more likely to lead to the formation of unilateral appreciation expectations.

The increase in exchange rate volatility will increase the difficulty and complexity of market players' judgment of exchange rate trend, thus affecting the expectation of RMB appreciation.

Since the reform in 2005, the RMB has been holding a gradual and small appreciation.

Although the RMB exchange rate has been suspended during the financial crisis in 2008, the revaluation of the RMB against the US dollar has been revalued since the reopening of the foreign exchange market in June last year. The cumulative appreciation has exceeded 5%.

Since the balance of payments continues to maintain a "double surplus" pattern, the appreciation of the RMB still has the support factors of the economic fundamentals.

But the continued unilateral appreciation is expected to attract a large influx of hot money overseas, resulting in an embarrassing situation of rapid growth in foreign exchange reserves and passive increase in domestic liquidity.

"Gradual appreciation is actually encouraging capital inflows," said Lian Ping, chief economist at Bank of communications. "If the exchange rate shows greater flexibility at the stage, the short-term and medium-term exchange rate trend will become less clear, which will play a role in restraining the unilateral appreciation expectation and will inhibit capital inflow."

To maintain the stability of the exchange rate, the central bank needs to intervene in the foreign exchange market and buy large amounts of dollars.

Thus, on the one hand, foreign exchange reserves have increased rapidly. By the end of 3, China's foreign exchange reserves also exceeded the US $3 trillion mark.

On the other hand, the central bank has poured a lot of liquidity into the domestic market, which has brought about a rapid increase in foreign exchange reserves.

In response, Tan Yaling said that if the Yuan's volatility widened, the unilateral speculation of the market would be suppressed. From the perspective of market operation, it would help to reduce the pressure of intervention by the central bank, and at the same time, help to reduce the pressure on the increase of foreign exchange reserves.

Expanding volatility is the general trend.

"Expanding the volatility is actually the trend of the times," said Lu Zheng commissar, chief economist of Xingye Bank. The further development of China's foreign exchange market needs further improvement of the market main body's sense of risk avoidance and the development of the hedge market. Only the expansion of the RMB against the US dollar can effectively promote this.

At present, the exchange rate of RMB against the US dollar is no more than 0.5% of the middle price, but in actual pactions, the fluctuation of the RMB against the US dollar rarely touches the upper and lower limit.

Lu commissar pointed out that the volatility of the RMB against the US dollar is too small, resulting in a relatively small risk of the RMB exchange rate against the US dollar, which prompted our trade settlement currencies to use the US dollar more, resulting in the inactive trading of non US currencies in the foreign exchange market, and ultimately the formation mechanism of the renminbi to a basket of currencies was actually "suspended".

"Because the exchange rate of other currencies is not active, the final exchange rate changes are attributed to the adjustment of the US dollar exchange rate."

He said.

In addition, more volatile exchange rates are needed to promote the development of foreign exchange derivatives.

At present, China's foreign exchange market already has derivatives, such as forward, swap and options, of which RMB foreign exchange options have just been launched in April 1st.

However, due to the small fluctuation of exchange rate and other factors, the trading of RMB foreign exchange options is very inactive.

Lian Ping also said that if the fluctuation of exchange rate is large, enterprises will have stronger sense of risk avoidance, and the demand for derivatives will increase. This will also enable banks to provide products at a more reasonable price, and the pactions of derivatives will become more active and the market will develop.

However, Li Wei, a macroeconomic analyst at Standard Chartered Bank, believes that in the medium to long term, it is necessary to expand the volatility of the renminbi. However, as the RMB appreciation trend will still exist in the medium and long term, the mode of enterprise operation and financial institutions will not have a significant impact in the short term.

Help RMB internationalization

Since the pilot of cross-border RMB trade settlement, the internationalization process of RMB has been very fast, which has made a more market-oriented RMB exchange rate on the agenda.

"How can we deal with an inflexible currency?" Lu commissar said that there is no market-based exchange rate formation mechanism, and that the confidence of foreign investors in Renminbi will be weakened, and the willingness of foreign central banks to include Renminbi in reserve currency will also be reduced.

Lian Ping also said that with the rapid development of the RMB, the opening rate of capital projects is accelerating. This will inevitably lead to greater demand for currency exchange, and hence the need for a more market-oriented RMB exchange rate.

Widening the fluctuation range is conducive to the RMB exchange rate to more reflect the market supply and demand relationship. It is an important embodiment of the marketization of the exchange rate formation mechanism.

Of course, for the internationalization of RMB, the increase in exchange rate volatility is only one small step.

Tan Yaling pointed out that promoting the internationalization of RMB is more important in the construction and improvement of the RMB system, the development of RMB products, the supervision of foreign exchange market and so on.