By Xu Wei, Department of Macroeconomic Research, DRC

Research Report, No.240, 2020 (Total 5984) 2020-10-10

Abstract: The RMB exchange rate plays a key role in promoting internal and external balance and smoothing economic circulation. The operation of the RMB exchange rate has weathered a number of tests since 2018 such as China-U.S. trade war and COVID-19 epidemic, featured by prominent resilience, two-way fluctuations, and improved monetary policy autonomy. However, the acceleration of short-term capital flow, spillover impacts of excessive international liquidity, the rise of financial security risks and the development of digital economy have all posed new requirements for the flexibility and convertibility of the RMB exchange rate in the post-epidemic period. Therefore, relevant authorities need to adapt to new development trends, and push ahead with reforms of the RMB exchange rate mechanism to make changes of the rate more in line with China’s economic fundamentals as well as market supplies and demands. Efforts are also needed to accelerate the development of onshore RMB exchange rate market and multi-level capital market, expand RMB-denominated products in the offshore market, increase RMB convertibility steadily and improve the prudential management system of cross-border capital flow in a bid to enhance the efficiency of cross-border resource allocation, prevention and control of risks amid the opening up as well as inbound return and the rise of international status of RMB.

Keywords: exchange rate, international revenue and expenditure, RMB assets, stability at the macro level