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RMB exchange rate not formed a tendency of devaluation

Views: 475     Author: VV     Publish Time: 2015-09-02      Origin: Rech Chemical Co. Ltd

In 11th August 2015, the central bank announced to reform on mechanism of central parity. After the announcement, RMB exchange rate is decrease for three days consecutively with drop over 5%, hitting the biggest decline in 20 years. RMB exchange rate appeared a substantial devaluation, given by the large pressure of accumulation of pre-devaluation and reformation of mechanism of central parity. Rech Chemical has following reason to prove that RMB exchange rate not formed a tendency of devaluation.
Firstly, macroeconomic fundamentals are relatively stable guaranteed the exchange rate will not continued depreciation. In the second quarter of this year, China’s current growth remains in the high position of 7 percent. It is not only proving that China's economic still in the forefront under the force of global economy, but also supporting the stability of currency rate.
Secondly, the direct cause of this depreciation is the central bank launched a new reformation. The implementation of this reformation makes the currency devaluation becoming a spontaneous adjustment by the supply and demands of market without forming a tendency of devaluation. This reformation help the central bank enhanced the autonomy of monetary policy and reduced the impact of external shocks on the domestic financial market.
Thirdly, lever pressure from foreign exchange market is relatively small. Bank is the major participants of foreign exchange market and it not having much net exposure, thus it has no need to use leverage operation of derivatives of foreign exchange. That is the reason why foreign exchange will not occurred such uncontrollable power like stock market. Under this circumstance, the centre bank has strong ability to stabilize the market without a doubt.
Finally, the starting point of the reformation is to complete the formation mechanism of RMB exchange rate, and does not form a depreciation trend. The above points are written by Rech Chemical Co. Ltd for reference.


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