How to treat the RMB exchange rate breaking 7 is close at hand?

Recently, the exchange rate of the RMB against the US dollar has “closed” to the 7-point and the foreign exchange reserves have “forced” to 3 trillion US dollars, which has caused great concern in the market.
Relevant persons of the People's Bank of China and the foreign exchange bureau said on the 22nd that the future trend of the US dollar will not be unidirectional, and the foreign exchange reserves are not simply linked to the exchange rate single item. The market does not need to over-interpret a certain point. The central bank will adopt a number of measures to create conditions for the renminbi bonds to join the international major bond index and guide more foreign investment into the domestic market.

Facing the "7 mark" to increase the positive guidance expectations
On the 22nd, the central parity of the RMB against the US dollar was reported at 6.9435, a 54 basis point increase from the previous trading day. According to data from the China Foreign Exchange Trading Center, as of 16:30 on the 22nd, the closing price of the RMB against the US dollar was reported at 6.9466.
Looking at the "breaking 7" that is close at hand, many market participants are worried. In this regard, Ma Jun, chief economist of the Research Bureau of the People's Bank of China, said that the future trend of the US dollar will not be unidirectional. Once the market finds that past expectations are too optimistic, the US dollar index may be adjusted, and other currencies will appreciate against the US dollar. .
In Ma Jun’s view, the recent rapid strength of the US dollar, the exchange rate of many countries including the renminbi against the US dollar, mainly due to changes in market expectations, may be too optimistic.
Industry insiders said that the sharp appreciation of the US dollar and the yield of US Treasury bonds have a tightening effect on the US real economy, especially on exports. Recently, the US corporate bond issuance rate and housing mortgage interest rate have risen sharply, and the US large-scale tax reduction and infrastructure projects can also be realized. Not known.
Since the first quarter of this year, the renminbi has adopted a mid-price pricing mechanism of “closing price + one basket”. "This formula provides sufficient flexibility for RMB fluctuations, which will lead to two-way fluctuations." Ma Jun said that the two-way fluctuation of the RMB exchange rate in recent months has been larger than before. In the specific operation, the central bank has comprehensively considered the exchange rate flexibility and stability. Sex.
"Recently, we have increased the intensity of positive guidance. Since the beginning of November, the RMB exchange rate has appreciated slightly." Ma Jun said, "From the perspective of China's economic fundamentals, the PMI continued to rise in November, and private investment has already We began to bottom out and the export growth rate turned positive. We are confident that we will maintain the basic stability of the RMB at a reasonable and balanced level on the basis of increasing exchange rate flexibility."

“3 trillion” is not a measure of the abundance of foreign reserves.
At the end of November, China’s foreign exchange reserves stood at 30.516 billion U.S. dollars, down by 69.1 billion U.S. dollars from the end of October, and the biggest decline since January this year. Foreign exchange reserves are approaching $3 trillion, causing concern among many market participants.
"There is no uniform indicator of how much foreign exchange reserves are moderately sized. When foreign exchange reserves exceeded '4 trillion' in the past, some people thought that there were too many foreign reserves, but they fell to '3 trillion' and some people worried that it was not enough." It is said that the market should pay more attention to whether the current foreign exchange reserves can continue to provide liquidity to the market and whether it can withstand external risk shocks rather than a specific point.
Relevant persons of the foreign exchange bureau believe that the main factors causing the decline in foreign exchange reserves in the near term are the liquidity provided by the central bank to the market and the valuation effect, such as the depreciation of non-US currencies such as the euro and the yen in foreign exchange reserves. "At present, the $3 trillion in foreign exchange reserves is abundant and in a reasonable stable range. It is not that the crisis will come as foreign exchange reserves fall below $3 trillion."
It is reported that China significantly reduced its US$41.3 billion in US Treasury bonds in October, and its total debt holdings fell to 1.1157 trillion US dollars, setting a new low in recent years.
In this regard, relevant persons from the foreign exchange bureau said that US Treasury bonds are an important investment target in the international financial market. Central banks will consider investment targets from the ratings to market depth to liquidity and risk characteristics. "Of course, the central bank will also make tactical dynamic adjustments to US Treasury investment through micro-term considerations such as the recent US interest rate hike and the US Treasury yield curve."

Accelerate the opening of domestic bond markets to introduce overseas funds
The volatility of the RMB exchange rate and the continued decline in foreign exchange reserves have caused many people to worry about the pressure of cross-border capital flows.
According to the International Finance Association, from 2000 to 2013, international capital flows into emerging economies, but since the second half of this year, international capital has been in a capital outflow situation in emerging economies. China has been deeply integrated into the international capital market and cannot be separated from the big pattern of international capital flows.
However, relevant persons of the foreign exchange bureau believe that the current situation of cross-border capital flows in China is generally stable, which is related to the PBOC and the foreign exchange bureau taking certain measures to expand capital inflows in the early stage.
In this regard, Ma Jun said that in the future, the central bank will coordinate relevant departments to allow and guide foreign investors to enter the domestic foreign exchange derivatives and interest rate derivatives markets to hedge interest rate and exchange rate risks; further clarify the remittance of investment Rules for gold and income, and tax policies for investment income and interest income; exploring ways to expand transaction time and reduce the burden of overseas investors' repeated account opening through domestic and overseas infrastructure cooperation, improve transaction convenience, and further expand actual participation in the inter-bank bond market The range of foreign institutional investors investing.
Ma Jun said that through the above measures, the convenience of foreign institutions investing in the inter-bank bond market in China can be enhanced, and the conditions for the major international bond index compilers to include RMB bonds in the relevant index will be created, thus guiding more overseas funds into the Chinese bond market.
According to Deutsche Bank's research, if Chinese bonds are included in the global bond index, new capital of 700 billion to 800 billion US dollars will flow into the Chinese bond market in the next five years. Some market participants estimate that a considerable amount of money will be invested in the Chinese bond market, or it will support the basic stability of the RMB exchange rate.

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