(Economic Observer) Do not calculate trade accounts in the exchange rate. The rise and fall of the RMB is determined by the market.

China News Service, Beijing, October 10 (Tao Siyue) The "Policy Position of the People's Bank of China on the RMB Exchange Rate" (hereinafter referred to as the "Position") was recently released, clarifying China's official attitude. The position emphasizes that the RMB exchange rate is determined by market supply and demand, and China has no intention to gain a competitive advantage in trade through exchange rate depreciation.

The release of this position needs to be viewed in an international context. In the face of China's trade surplus, some countries have recently clamored for an underestimation of the RMB exchange rate, and even tried to force the RMB to appreciate in a non-market manner, using fluctuations in financial markets and exchange rates to affect China's external real economic flows.

The People's Bank of China issued a policy stance at this time, once again reaffirming that China implements a market-oriented exchange rate system and insists on allowing the market to play a decisive role in the formation of exchange rates. After 2017, normalized intervention was completely withdrawn, that is, the central bank did not set a target price, did not support the market, and did not intervene forcibly. Because exchange rate flexibility has been completely liberalized, two-way fluctuations in the RMB exchange rate have become more frequent in recent years. The era of unilateral appreciation and unilateral depreciation is over.

Pang Ming, a member of the China Chief Economist Forum, said in an interview with China News Service that the RMB exchange rate is determined by market supply and demand. The relationship between the current account balance and the exchange rate is not a simple linear relationship, but the result of the joint action of multiple factors such as residents' savings, government finances, domestic demand, industrial competitiveness, and the international monetary system.

Regarding the view that the trade conflict is attributed to the so-called exchange rate issue, the position is that China's trade development is rooted in the improvement of the international competitiveness of the industry. Except for China, the products of some economies meet international demand and their exports also grow rapidly, which is not driven by the depreciation of their local currencies.

Pang Ming said that for China, there is no contradiction between maintaining the flexibility of the RMB exchange rate and expanding exports without relying on devaluation. China's foreign trade competitiveness is increasingly based on a complete industrial chain, product upgrades and production efficiency, rather than exchange rate and price advantages.

Xu Peng, deputy director of the Situation Office of the Market Research Institute of the China Academy of Macroeconomics, said that this year, the onshore and offshore RMB exchange rates against the US dollar have both risen above the 6.7 mark. Under the trend of currency depreciation in neighboring countries, China did not choose beggar-thy-neighbor and competitive devaluation measures, which is a responsible manifestation.

At the same time, "forcing the RMB exchange rate to appreciate is putting the cart before the horse and will harm other economies around the world," said Guo Kai, president of the China Financial Forty Research Institute. In recent years, China's contribution to global economic growth has stabilized at around 30%, which shows that China is a "growth engine" and not a "source of imbalance."

Is there any time for the central bank to take action? Only in extreme market conditions will the central bank take action to stabilize expectations. For example, when major external shocks such as epidemic outbreaks and tariff wars occur, panic and herding effects occur in the market. This is not an "exclusive" operation in China, but a common international practice. During the 2008 international financial crisis, some countries carried out foreign exchange intervention to avoid excessive depreciation of their currencies.

In this statement, the central bank made its position clear: there is no need or intention to gain any competitive advantage through currency devaluation, and it will never engage in competitive currency devaluation. "Trade imbalance" is a long-standing phenomenon, and the main surplus countries are constantly changing. The central bank believes that all countries should promote their own structural reforms, and deficit countries should embark on fiscal consolidation to improve their savings rates and industrial competitiveness; surplus countries should promote consumption and investment growth.