In late April 2022, the depreciation pressure of RMB against the US dollar increased significantly. In the context of the Fed's interest rate hike and the strengthening of the US dollar, the depreciation of the RMB against the US dollar is not surprising. When analyzing the trend of RMB exchange rate next, the important question is not why the RMB depreciated against the US dollar, but why the RMB did not depreciate too much against the US dollar?
At present, one of the sources of RMB exchange rate resilience is the soundness of China's private international assets and liabilities. Before the "811 foreign exchange reform" in 2015, China's private sector was in a mismatch of foreign exchange assets and liabilities with high foreign debt. At present, China's private foreign exchange assets and liabilities have been greatly improved, which has enhanced the stability of the RMB exchange rate and greatly reduced the possibility of disorderly devaluation of the RMB.
Over the past two years, the people's Bank of China has stopped foreign exchange settlement, which has also brought support to the RMB exchange rate. When the people's Bank of China continues to settle foreign exchange, after the people's Bank of China obtains the foreign exchange obtained from foreign exchange settlement, it will invest it in the international market through its subordinate foreign exchange administration, so as to let these foreign exchange flow out overseas. In this case, the people's Bank of China, like a water pump, draws private foreign exchange abroad, depressing the holdings of private foreign exchange assets. In the past two years, the withdrawal of the people's Bank of China from the settlement and sale of foreign exchange has blocked the people's Bank of China, an important channel for foreign exchange outflow, and brought the RMB exchange rate into a new stage of greater resilience.
Looking forward to the next few months, the RMB exchange rate against the US dollar should still depreciate, but the depreciation process should be mild and orderly. It is not suitable to use the simple quantitative relationship of RMB to predict the future. At a time when the interest rate gap between the United States and China has narrowed and the pressure of RMB devaluation has increased, the exchange rate is a tight constraint on China's monetary policy.
