Over the past year, China's continued improvement in the Chinese economy has provided solid support for the RMB exchange rate, despite the challenges facing the global economy, such as rising US interest rates and heightened risk aversion, which led to the US dollar index**. The renminbi has remained largely stable against a basket of currencies, and has even appreciated against non-dollar currencies. In 2023, the RMB exchange rate experienced fluctuations, but since November, it has gradually stabilized and recovered, and the overall level has remained at a reasonable equilibrium.
Looking ahead to 2024, People's Bank of China Governor Pan Gongsheng pointed out at a press conference that short-term fluctuations in the exchange rate are affected by a variety of factors, including economic growth, monetary policy, financial market conditions, geopolitical risks, etcBut the long-term trend will depend largely on economic fundamentals. It is expected that the RMB exchange rate will remain stable at a reasonable equilibrium level in 2024.
Wen Bin, chief economist of China Minsheng Bank, believes that with the emergence of domestic policy effects and the continuous recovery of the economy, the attractiveness of RMB assets will increase, coupled with the possible weakening of the US dollar index, the RMB is expected to remain stable and achieve a slight appreciation in 2024.
Looking back at 2023, the RMB exchange rate has shown resilience in the face of challenges such as high interest rates and insufficient domestic demand in advanced economies. At the end of the year, the central parity of the RMB against the US dollar was ** compared with the beginning of the year, but rebounded from the middle of the year. Zhu Hexin, deputy governor of the People's Bank of China, stressed that the RMB exchange rate has remained basically stable throughout the year and has played the role of a macroeconomic stabilizer.
Guan Tao's analysis pointed out that the RMB exchange rate will go through three stages in 2023: the strong ** at the beginning of the year, the ** adjustment in the middle of the year, and the rebound at the end of the year. In particular, since November, the easing of Fed policy expectations and the decline in US inflation, as well as positive signals of domestic economic growth, have jointly promoted the appreciation of the RMB against the US dollar.
When evaluating the RMB exchange rate, multilateral exchange rates should be taken into account, not just bilateral exchange rates. In 2023, the renminbi has shown greater resilience relative to other emerging market currencies. In addition, the correlation between the RMB exchange rate and the US dollar index has declined, indicating that the RMB exchange rate is more dominated by domestic economic factors.
Entering 2024, the RMB exchange rate remained stable at the beginning of the year. The market generally expects that with the continuous improvement of the economy and the easing of external pressures, the stability of the RMB exchange rate will be strengthened. Wang Jinbin, a researcher at the National Academy of Development and Strategy, expects the renminbi exchange rate to appreciate slightly in two-way fluctuations. Duan Chao, chief macro officer of Industrial **, also believes that the change of the Federal Reserve's policy, the steady recovery of China's economy and the dislocation of the Sino-US economic cycle will provide support for the RMB exchange rate.
Pan Gongsheng stressed that the fundamentals of China's economy, the dislocation of the China-US monetary policy cycle, the investment value of RMB assets, and the micro foundation of exchange rate stability are all key factors supporting the stability of the RMB exchange rate. The IMF's latest** also showed that China's economic growth rate will increase, which will further support the RMB exchange rate.
In terms of policy tools, the People's Bank of China (PBoC) and the State Administration of Foreign Exchange (SAFE) have taken a series of measures to deal with the pressure of exchange rate depreciation, such as RRR cuts. These measures will help stabilize market expectations and consolidate the economic upturn. Wen Bin expects that the policy of stabilizing the exchange rate will continue to play a role in 2024 to ensure the stability of the RMB exchange rate at a reasonable and balanced level.
Zhu Hexin said that in 2024, the foreign exchange management department will continue to guide market expectations, prevent the risk of abnormal capital flow, maintain the basic stability of the RMB exchange rate and the balance of payments, and maintain the bottom line of systemic financial risks.