On October 8, the "Policy Position of the People's Bank of China on the RMB Exchange Rate" (hereinafter referred to as the "Position") was released, emphasizing that China implements a managed floating exchange rate system based on market supply and demand and adjusted with reference to a basket of currencies, and insists on letting the market play a decisive role in the formation of exchange rates. This is the first time the central bank has systematically stated its policy stance on the RMB exchange rate.
It is worth noting that the central bank has made many statements recently regarding the "underestimation" of the RMB exchange rate. Previously, when attending the G20 Finance Ministers and Central Bank Governors meeting, Pan Gongsheng, the governor of the central bank, stated that China implements a managed floating exchange rate system, insists on the decisive role of the market in the formation of exchange rates, and at the same time prevents the market's "herding effect" and the self-reinforcement of irrational expectations. The same statement was mentioned again at the third quarter regular meeting of the Central Bank’s Monetary Policy Committee.
“Recently, international discussions on trade frictions and global imbalances have increased, and RMB valuation has become a focus of discussion.” Yang He, member of the Standing Committee of the All-China Youth Federation and President of the Industrial and Commercial Bank of China Modern Finance Research Institute, noted that the G20 meeting, the International Monetary Fund (IMF) annual meeting, and the recent China-EU economic and trade negotiations all focused on the RMB exchange rate and my country’s surplus as one of the key discussion topics. The trade performance is misinterpreted as being achieved by artificially lowering the exchange rate to create price advantages and exporting excess production capacity to the world, and using this as a rhetoric and bargaining chip to put pressure on my country in economic and trade negotiations. "In Yang He's view, the policy stance on the RMB exchange rate issued by the People's Bank of China mainly responds to three key issues, namely, whether the RMB exchange rate is artificially lowered by the policy, whether the RMB exchange rate is undervalued, and whether global economic imbalances can be resolved unilaterally by China.
The "Position" emphasizes that China's trade development is rooted in the improvement of the international competitiveness of its industries. China has no need or intention to gain a competitive advantage in trade through exchange rate depreciation, and has never engaged in competitive currency depreciation.
Data from the central bank shows that multiple rounds of RMB appreciation in the past did not affect China's trade development, and China's export share did not increase faster during the devaluation period. The RMB appreciated against the US dollar by 21% from 2005 to 2008, by 10% from 2010 to 2014, and by 9% from 2020 to 2021. During the same period, China's export share in the world increased by 2.4 percentage points, 2.8 percentage points, and 1.7 percentage points respectively. In 2016, the RMB depreciated against the US dollar by 7%, and in 2022, the RMB depreciated by more than 8%. During the same period, China's export share in the world fell by 0.7 percentage points.
"Current account surplus does not necessarily promote currency appreciation."
As an important price in the financial market, exchange rate fluctuations are related to cross-border consumption costs, corporate development benefits and personal financial returns. The "Position" mentioned that exchange rate is a price comparison relationship between currencies, which is affected by multiple factors such as economic growth, monetary policy, financial markets, geopolitics, and unexpected risk events. When analyzing changes in exchange rates, we must look not only at trade in goods, but also at trade in services; not only at current accounts, but also at financial accounts; we must pay attention not only to economic fundamentals, but also to expectations and other factors.
"There is no simple linear relationship between the exchange rate and the current account." Guo Yingfeng, associate researcher at the China Center for International Economic Exchanges, told reporters from China Youth Daily and China Youth Daily that in recent years, the currencies of surplus countries such as Japan, Switzerland, and Germany have also experienced depreciation. The United States has long-term current account deficits, and the U.S. dollar generally remains strong. "In the first half of 2026, South Korea's surplus expanded amid the artificial intelligence boom, but the Korean won continued to depreciate, which also shows that capital flows and market expectations often affect the short-term exchange rate more than the trade balance." Guo Yingfeng noted that our country has been actively adjusting over the years. According to central bank data, the ratio of current account surplus to gross domestic product (GDP) has fallen from its peak of 9.9% in 2007, and the contribution of consumption to economic growth has increased from 37% in 2010 to 52% in 2025.
The "Position" shows that judging from China's situation, the funds flowing in from the current account surplus are used globally through foreign investment by enterprises, banks, etc., and the international balance of payments maintains a basic balance. The current account surplus does not necessarily promote the appreciation of the local currency.
In fact, one of the important structural changes in my country's trade in recent years is the decrease in sensitivity to exchange rate changes.
"The fundamental reason why trade has become less sensitive to exchange rate changes is that the export structure has changed. In the past, many orders were mainly about price, but now they are more about technology, quality, delivery, service and supply chain stability." Guo Yingfeng told reporters that changes in exchange rates will affect profits, but it is difficult to decide where the order will go alone.
Data from the General Administration of Customs shows that in the first half of 2026, my country exported 9.36 trillion yuan of mechanical and electrical products, accounting for 63.5% of total export value, and exported 3.26 trillion yuan of high-tech products, a year-on-year increase of 39%. "The competitiveness of products such as electric vehicles, lithium batteries, wind power equipment, etc. comes from technology iteration, supporting industrial chain and scale advantages, not from currency depreciation." Guo Yingfeng said.
Yang He also believes that with the upgrading of my country's industry, the comprehensive advantages formed by technology, quality and industrial chain support have become more prominent, the "gold content" of exports has increased, and the sensitivity of orders to short-term price changes has decreased. "The exchange rate still affects corporate costs and profits, but its effect on exports needs to be judged based on industrial competitiveness and market demand."
He found that in 2025, my country's goods trade surplus would be 8.51 trillion yuan, and the "new three items" exports would grow by 27.1%, which is about 21 percentage points higher than the overall export growth rate of 6.1%. In the first half of 2026, the "Three New and New Products" of robots, artificial intelligence, and innovative drugs performed outstandingly. The export of industrial robots increased by 18.6% year-on-year, and the export of surgical robots increased by 3.3 times year-on-year. The total number of external licensing transactions for innovative drugs was approximately US$110 billion. The export of AI-related products exceeded US$480 billion, a year-on-year increase of 47.3%, accounting for 22.7% of the overall exports. It is the sector with the largest export volume and the fastest growth rate among the "Three New and New Products". "These high value-added products have higher industrial chain supporting efficiency, technology accumulation and delivery capabilities, stronger market competitiveness and bargaining power, and can respond to exchange rate fluctuations more flexibly." Yang He said.
“Depoliticization is the prerequisite for an objective understanding of exchange rates and global imbalances.”
From the definition of exchange rate to the characteristics of my country's exchange rate system, under what circumstances does the central bank intervene, where does China's trade competitiveness come from, and who should bear responsibility for global imbalances, the "Position" clarifies many issues. Industry insiders believe that at a time when exchange rate issues are increasingly tied to tariffs, subsidies, and industrial chain policies, and are obviously politicized, the "Position" responds to the views of politicizing and instrumentalizing exchange rate issues from multiple dimensions.
"Depoliticization is the prerequisite for an objective understanding of exchange rates and global imbalances." Yang He believes that exchange rate determination, external equilibrium and global economic imbalances are economic issues and must follow the laws of economics. In its "Position", the People's Bank of China emphasizes market pricing, prudent use of exchange rate valuation models, and calls on the world to share the responsibility for imbalance adjustment. In essence, it promotes the return of discussions on the RMB exchange rate and trade surplus to economic laws, and actively contributes Chinese wisdom and strength to the current global economic rebalancing with a responsible attitude.
In his view, both exchange rate levels and trade surpluses or deficits are actually the result of market operations. Therefore, overvalued or undervalued exchange rates and global imbalances are essentially distortions and imperfections in the market mechanism, which require a long-term and sustainable institutional framework to adjust and correct deviations.
Guo Yingfeng also believes that the "Position" has drawn two boundaries, that is, the exchange rate can be communicated and coordinated within a multilateral framework, but it cannot be used as a bargaining chip in trade negotiations; the exchange rate should be determined by market supply and demand and macro fundamentals, and cannot be externally designated a level that must be reached. "Forced appreciation itself is a non-market practice." He believes that the People's Bank of China's emphasis on managing the exchange rate within a financial stability framework is not to avoid discussion, but to oppose unilateral pressure and political manipulation.
It is worth noting that after the outbreak of the Asian financial crisis, there was intense international discussion on the optimal exchange rate choice. Guan Tao, chief economist at Huafu Securities, remembers that the final consensus formed at that time was: "No exchange rate system is suitable for all countries and for any country at any time." This means that any exchange rate choice has advantages and disadvantages. For example, the advantage of a flexible exchange rate is that it helps to play the role of exchange rate floating in absorbing internal and external shocks, regulating economic operations and the balance of payments. However, the disadvantage is that it is prone to procyclical unilateral "herding effect", leading to exchange rate overshooting that deviates from fundamentals. To this end, the International Monetary Fund (IMF) recommends that the best practice for exchange rate policy operations is to benevolently ignore the rise and fall of the exchange rate on a daily basis, and only intervene when it affects the transmission of monetary policy (ie, price stability) and financial stability.
In Guan Tao's view, under the managed floating exchange rate framework based on market supply and demand, China's foreign exchange market regulation has implemented the above standards, and the operation to stabilize the exchange rate mainly targets risks that affect financial stability.
The "Position" shows that during the Asian financial crisis in the 1990s, the currencies of some countries devalued significantly, and the Chinese government promised that the RMB would not depreciate, playing an important role in maintaining regional economic and financial stability. During the international financial crisis in 2008, many countries' currencies depreciated sharply against the US dollar, while the RMB remained basically stable. In recent years, relevant countries have launched trade wars, the Federal Reserve has raised interest rates sharply and steeply, and non-US dollar currencies have generally faced greater depreciation pressure. The People's Bank of China has adopted macro-prudential policy measures in a timely manner to prevent the RMB exchange rate from overshooting in the direction of depreciation.
“Global economic imbalances are not caused by a single currency”
In fact, regarding the problem of global economic imbalances, the "Position" also outlines its causes, responsibilities and remedies.
The "Position" mentioned that global economic imbalances are closely related to the evolution of the global division of labor, inherent contradictions in the international monetary system, and long-term high fiscal deficits and high consumption in some countries, and require joint efforts from all parties to resolve them. To simply attribute the country's declining industrial competitiveness, weakening financial constraints and complex structural problems to other countries' exchange rates is to shirk and avoid its own adjustment responsibilities.
Regarding the direction of my country's efforts, the "Position" emphasizes that China will firmly implement the strategic direction and key measures determined in the "15th Five-Year Plan", insist on promoting the transformation of economic growth mode, expand domestic demand and high-level opening up, and contribute to a new round of global economic dynamic balance.
"The global economic imbalance is not caused by a certain currency, nor can it be solved by the appreciation of the RMB." In Guo Yingfeng's view, solving the global economic imbalance still relies on each country to promote its own structural reforms: deficit countries improve their national savings rates and industrial competitiveness, and surplus countries expand consumption and investment.
Guo Kai, president of the China Financial Forty Research Institute, also believes that RMB appreciation is not a panacea for solving global imbalances. "Relying solely on RMB appreciation will not only be of little help in solving global imbalances, but will also have very obvious side effects."
He further analyzed that the rapid appreciation of the RMB is similar to a huge cost shock. According to research by the China Financial Forty Research Institute, Made in China is the anchor of global manufacturing prices. China exports US$4 trillion in goods a year, which is a market of approximately US$20 trillion. "The rapid appreciation of the renminbi will not only bring about a significant increase in the price of China's exports, but may also affect the pricing of global manufacturing products, even if the products do not come directly from China. This is by no means good news for inflation that remains high in most countries, and will also put central banks in trouble."
Guo Kai also mentioned that while the United States still maintains a huge fiscal deficit, Europe has begun to increase infrastructure investment and military investment, and AI requires huge private capital investment, global savings are becoming a more scarce resource. "The other side of China's external surplus is China's net savings exported to the outside world. If China's surplus declines and deficit countries do not make corresponding adjustments, the result can only be higher bond yields, and the bond yields of major developed countries have risen to multi-year highs," he said.
China Youth Daily·China Youth Daily reporter Zhu Caiyun
