China implements a managed floating exchange rate system based on market supply and demand, adjusted with reference to a basket of currencies. China's exchange rate system has the following characteristics: First, it insists that the market play a decisive role in the formation of exchange rates. The second is to focus on preventing large short-term fluctuations in exchange rates, especially from affecting financial stability by rapidly depreciating in the short term. Under specific scenarios, such as the outbreak of the epidemic and major external shocks such as the April 2025 tariff war, the People's Bank of China uses macroprudential management tools to adjust and guide expectations, and even directly intervene in foreign exchange under extreme scenarios to correct the market's “flock effect” and self-strengthening of irrational expectations, especially irrational depreciation expectations, and prevent short-term destructive overadjustments in the exchange rate. The third is to continuously enhance the transparency of exchange rate policies.

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