By Xie Fang
The Chinese currency Renminbi (RMB) has been experiencing sharp depreciation since late June, with its central parity rate weakening to 6.6497 against the U.S. dollar on Tuesday, the lowest since August 25, 2017.
In an exclusive interview with the China Securities Journal on Tuesday, Yi Gang, governor of the People's Bank of China (PBC), disclosed that the central bank has been closely watching the ongoing fluctuations in the foreign exchange market these days.
In his opinion, the current volatility in the exchange rate of RMB is a result of multiple factors. "A stronger dollar and the external uncertainty are the main contributors to the volatility," said Yi. "Some of the factors are cyclical."
He pointed out that the fundamentals of the Chinese economy remain sound at present, with the financial risk largely under control, the acceleration of the economic transformation and upgrading, the economy entering a new phase of high-quality development, a stable international balance of payment, as well as a generally balanced cross-border capital flow.
When it comes to China's exchange rate policy, Yi noted that China adopts a regulated floating exchange rate system, which is based on the supply and demand of the market and adjusted by reference to a basket of currencies. "It has proved effective after years of implementation," said Yi. "We must adhere to it."
Yi also promised to maintain a moderate and neutral monetary policy and deepen the marketization reforms of the exchange rate.
"We will maximize the role of the macroprudential policy to stabilize the exchange rate of RMB at a reasonable and balanced level," he concluded.
In his keynote speech at the Bond Connect Anniversary Summit held by the Hong Kong Exchanges (HKEX) on Tuesday, Pan Gongsheng, deputy governor of the PBC and administrator of the State Administration of Foreign Exchange (SAFE), also noted that "With rich experience gained all these years and ample policy instruments, we are confident about keeping the exchange rate of RMB basically stable within a reasonable floating range."
