China said its deficit in foreign exchange settlements and sales by banks narrowed to $5.4 billion in August, down 12% month-on-month and 64% year-on-year, but that the supply and demand of its foreign exchange market remained balanced, according to a report released by China’s State Administration of Foreign Exchange on Thursday.
(File Photo: VCG)
The report said that the balance in foreign exchange reserves remained basically stable, at $3.11 trillion at the end of August, an increase of $3.5 billion, and up 1.1 percent from the start of the year. China has ranked first in the world for more than a decade in foreign exchange reserves.
"In a complex and volatile external environment, the stability of China's foreign exchange market is more prominent," said Wang Chunying, chief economist and spokesman of the State Administration of Foreign Exchange. She said the external environment volatility significantly increased since August, but China's foreign exchange market remained stable. A rational and orderly trading market shows that China's foreign exchange market is more mature, and more capable of adapting to the change in the external environment.
Both the onshore and offshore RMB fell past 7 against the US dollar on August 5, but this does not mean a depreciation against other currencies because the RMB does not focus on any single currency but a basket of currencies.
After analyzing the performance of the RMB's exchange rate for many years, it is not hard to conclude that the RMB is indeed one of the most stable currencies in the world.
According to data released by the Bank for International Settlements, the nominal effective exchange rate of the RMB appreciated by 38% and the real effective exchange rate appreciated by 47% since the exchange rate formation mechanism reformed in 2005 until June 2019.
In the past 15 years, rather than depreciating, the RMB was one of the world's biggest appreciating currencies.
Data from the National Bureau of Statistics shows that China's foreign exchange reserves were tight from the 1950s to the 1970s. At the end of 1952, it was only $108 million, and by the end of 1978, only $167 million, ranking 38th in the world.
Since the reform and opening up, China's foreign exchange reserves have increased steadily, exceeding $1 trillion at the end of 2006, ranking first in the world and beating Japan. At the end of 2018, China's foreign exchange reserves stood at $3.1 trillion, ranking first in the world for 13 consecutive years.
As for the trend of the RMB exchange rate, after the unification of the exchange rate in early 1994, the RMB exchange rate rose steadily and slowly. By the end of 1997, the central parity rate of the RMB exchange rate had appreciated by 5.1 percent. By the end of 1996, the RMB current account was fully convertible.
During the Asian financial crisis, the Chinese government pledged not to devalue the RMB, stabilized the RMB exchange rate at 8.28:1 against the US dollar, strengthened and improved foreign exchange management, and cracked down on export evasion and import fraud. After the exchange rate formation mechanism reformed in 2005, the RMB exchange rate appreciated by 2%. A managed floating exchange rate system based on market supply and demand, adjusted to a basket of currencies was implemented, and the flexibility of the RMB exchange rate gradually increased.
It shows that, since 1997, the RMB has appreciated against the US dollar on the whole, rising by more than 15%.
Lian ping, chief economist at the Bank of Communications, said the RMB is the strongest currency in the G20 economies in terms of exchange rate index, and one of the most appreciated currencies globally. From the perspective of the trend of RMB exchange rate in specific periods, during the Southeast Asia financial crisis and other global financial crises, the RMB was basically pegged to the US dollar. When the currencies of most emerging market countries were greatly devalued, the RMB exchange rate remained stable, which demonstrated the demeanor of a responsible big country and won the respect of the world.
So far this year, the RMB has maintained a stable position in the international monetary system. The RMB has strengthened against a basket of currencies, and the RMB exchange rate index has appreciated by 0.3 percent. From the start of 2019 to August 2, the central parity rate of the RMB depreciated 0.53 percent against the US dollar, less than the fall of the Korean Won, Argentine Peso, Turkish Lira and other emerging market currencies in the same period.
"The RMB is not merely a more stable currency among emerging market currencies, it also performs better than other reserve currencies such as the Euro and Sterling," Dong Ximiao, a senior researcher at the Chongyang Financial Research Institute at Renmin University of China.
(Compiled by Yu Lidong)