The Zhitong Finance App learned that on October 8, the People's Bank of China's policy position on the RMB exchange rate stated that there is no simple linear relationship between the exchange rate and the current account. The exchange rate is a comparative relationship between currencies. It is affected by multiple factors such as economic growth, monetary policy, financial markets, geopolitics, and sudden risk events. To analyze changes in exchange rates, we need to look not only at trade in goods, but also on trade in services; we need to look not only at current accounts, but also on financial accounts; we must pay attention not only to economic fundamentals, but also to factors such as expectations.
Among them, it is mentioned that we insist that the market play a decisive role in the formation of exchange rates. After years of development, China has gradually formed a multi-level foreign exchange market system with perfect functions. The depth and breadth of the foreign exchange market continues to expand. Business entities independently participate in foreign exchange transactions based on commercial principles, and market supply and demand play a decisive role in the formation of the RMB exchange rate. The People's Bank of China does not set target exchange rate levels, does not interfere with long-term exchange rate trends, and maintains exchange rate flexibility and two-way fluctuation. After 2017, the People's Bank of China withdrew from normalized foreign exchange intervention.
Among them, it was mentioned that medium- to long-term policy commitments are more conducive to stabilizing expectations. Countries should formulate medium- to long-term policies and plans, make clear commitments and firmly implement them, and avoid “flipping pancakes” back and forth. Trying to resolve the structural problems of the global economy within one to two years is unrealistic, and a sharp shift in policy in the short term may be counterproductive. For example, the 2025 global tariff war triggered “import grabbing”, exacerbating imbalances and harming global economic growth.
The original text is as follows:
The People's Bank of China's policy position on the RMB exchange rate
As an important price in the financial market, the RMB exchange rate has been receiving attention from various circles for a long time, and discussions have increased recently. The policy position of the People's Bank of China on the RMB exchange rate is now explained as follows.
China implements a managed floating exchange rate system based on market supply and demand, adjusted with reference to a basket of currencies, and insists that the market play a decisive role in exchange rate formation.
Over the past 20 years, the RMB exchange rate has fluctuated in both directions; since 2010, the RMB exchange rate has gone through multiple cycles of appreciation and depreciation. The characteristics of two-way fluctuation have become more obvious, and flexibility has increased.
China's trade development is rooted in an increase in the international competitiveness of the industry. 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.
The exchange rate is affected by various factors such as economic growth, monetary policy, financial markets, geopolitics, and sudden risk events, and there is no simple linear relationship with the current account.
International methods for evaluating the equilibrium level of exchange rates are not yet mature. Using individual assessment findings as the “official basis” for underestimating the RMB exchange rate is a misinterpretation and misuse of the evaluation results.
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 all parties to work together to resolve them. Simply attributing the decline in domestic industrial competitiveness, weakening financial constraints, and complex structural problems to other countries' exchange rates is a prevarication and avoidance of responsibility for one's own adjustments.
China has made positive contributions to many rounds of dynamic balance in the global economy. During the “15th Five-Year Plan” period, it will continue to promote the transformation of economic growth methods, expand domestic demand, improve the business environment, deepen a high level of opening-up to the outside world, and promote the development of the global economy in a more open, inclusive and balanced direction.
I. Arrangements for China's exchange rate system
The market-based reform of the RMB exchange rate is an important part of building a socialist market economy system, and China's direction of advancing the market-based reform of the RMB exchange rate is firm and consistent. In 1993, the Third Plenary Session of the 14th CPC Central Committee proposed the establishment of a managed floating exchange rate system based on market supply and demand. In 2003, the Third Plenary Session of the 16th CPC Central Committee called for improving the RMB exchange rate formation mechanism, deepening the reform of the RMB exchange rate market-based formation mechanism in 2005, and the Third Plenary Session of the 18th CPC Central Committee in 2013 further made important arrangements to improve the RMB exchange rate market-based formation mechanism. As a large economy, the market-based exchange rate mechanism meets China's strategic interests and development needs, and also provides important support for improving the autonomy and effectiveness of monetary policy.
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:
The first is to insist that the market play a decisive role in the formation of exchange rates. After years of development, China has gradually formed a multi-level foreign exchange market system with perfect functions. The depth and breadth of the foreign exchange market continues to expand. Business entities independently participate in foreign exchange transactions based on commercial principles, and market supply and demand play a decisive role in the formation of the RMB exchange rate. The People's Bank of China does not set target exchange rate levels, does not interfere with long-term exchange rate trends, and maintains exchange rate flexibility and two-way fluctuation. After 2017, the People's Bank of China withdrew from normalized foreign exchange intervention.
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.
These measures are in line with international rules and practices. For example, during the 2008 international financial crisis, currency exchange rates in some emerging economies fluctuated greatly, and relevant countries carried out foreign exchange intervention to avoid financial risks caused by excessive depreciation of the local currency. In July 2026, the yen once depreciated against the US dollar to a low level of nearly 40 years, triggering joint intervention by relevant countries.
The third is to continuously enhance the transparency of exchange rate policies. Since 2016, China has published balance of payments and related foreign exchange data in accordance with the International Monetary Fund (IMF) Data Disclosure Special Standard (SDDS) to a higher international standard, continuously increasing the dimension and frequency of data publication. China has responded positively to the initiatives of international organizations and will further submit foreign exchange related data to the IMF starting in 2027.
II. Changes in the RMB exchange rate
Since the foreign exchange reform in 2005, the RMB exchange rate has fluctuated in both directions and has remained strong overall among major international currencies. Looking at bilateral exchange rates, the RMB exchange rate against the US dollar appreciated from 8.27 yuan in the July 2005 foreign exchange reform to around 6.7 yuan at present, with a cumulative increase of 23%. Looking at multilateral exchange rates, since the 2005 foreign exchange reform, the Bank for International Settlements estimates that the nominal effective exchange rate of the RMB has appreciated by more than 50%, and the actual effective exchange rate has appreciated by 35%.
After 2010, the cycles of appreciation and depreciation of the RMB exchange rate alternated. The characteristics of two-way fluctuation became more obvious, and exchange rate flexibility increased markedly. The RMB exchange rate against the US dollar has gone through three cycles of appreciation and three cycles of depreciation. Overall, it is operating in a wide range of 6.04-7.35 yuan. The RMB exchange rate fluctuates more than 10% in each cycle of appreciation and depreciation.
Since 2025, the RMB exchange rate has fluctuated in both directions and appreciated in an orderly manner. Since 2025, the RMB exchange rate against the US dollar has accumulated a cumulative appreciation of about 9%. In particular, since 2026, the US dollar index and US bond yields have risen rapidly, non-US currencies have generally depreciated, and the overall appreciation trend of the RMB against the US dollar has continued. Looking ahead, there are many factors affecting the RMB exchange rate. There are factors driving appreciation and depreciation, and there is still uncertainty about the exchange rate trend.
3. China has no need or intention to gain a competitive advantage in trade through exchange rate depreciation
The development of China's trade is rooted in the increase in the international competitiveness of the industry. Historically, the world's major trade surpluses have basically been countries with strong industrial competitiveness. China's trade growth has benefited from China's reform and opening up over the past 40 years, a large-scale market, a complete industrial chain and infrastructure system, abundant, high-quality, and hardworking labor resources, and continuous R&D and innovation capabilities. With the exception of China, some economies' products meet international demand, and exports are also growing rapidly, not driven by depreciation of the local currency.
In the past, many rounds of RMB appreciation did not affect China's trade development, and China's export share did not increase faster during the depreciation period. The RMB appreciated 21% against the US dollar in 2005-2008, 10% in 2010-2014, and 9% in 2020-2021. Over the same period, China's exports increased by 2.4, 2.8, and 1.7 percentage points respectively. Meanwhile, the RMB depreciated 7% against the US dollar in 2016, and the RMB depreciated by more than 8% in 2022. The global share of China's exports fell 0.7 percentage points during the same period.
An important structural change in China's trade in recent years is a marked decrease in sensitivity to changes in exchange rates. Looking at the trade structure, China's export structure has been transformed and upgraded, shifting from mainly low-end labor-intensive products to middle- and high-end, diversified products. In the past five years, China's imports and exports of high-tech products grew at an average annual rate of 7.9%. In 2025, the year-on-year growth rate further rose to 11.4%, contributing nearly 60% to the overall growth of foreign trade. Chinese exporters are no longer simply price takers, but are embedded in the global supply chain and can share exchange rate costs with upstream and downstream enterprises. Looking at trade-related financial services, foreign trade enterprises use more exchange rate hedging methods. About 30% of trade is settled in RMB, and the foreign exchange hedging ratio of enterprises has also reached about 30%, further reducing the sensitivity of trade to exchange rate fluctuations. These ratios are expected to increase further in the future.
China is a responsible power. In many rounds of intense external shocks in the past, China has never engaged in competitive currency depreciation, and has never followed the trend of driving the devaluation of the RMB to boost exports. During the Asian financial crisis in the 1990s, some countries' currencies depreciated sharply, and the Chinese government promised not to depreciate the RMB, which played an important role in maintaining regional economic and financial stability. During the 2008 international financial crisis, many countries' currencies depreciated sharply against the US dollar, and the RMB remained basically stable. In recent years, the countries concerned have launched trade wars, and the Federal Reserve has raised interest rates drastically and steeply. Non-US dollar currencies generally face greater depreciation pressure. The People's Bank of China has adopted macroprudential policies and measures in due course to prevent the RMB exchange rate from being overadjusted in the direction of depreciation.
The volume of transactions in the global foreign exchange market is huge, and it is difficult to continuously interfere with and influence the foreign exchange market. In 2025, the average daily trading volume of the global foreign exchange market was nearly 10 trillion US dollars, of which RMB had an average daily foreign exchange volume of more than 800 billion US dollars, accounting for about 80% of offshore market transactions. Every transaction affects exchange rate trends. Central banks basically have no ability to intervene to influence medium- to long-term exchange rate trends, and it is impossible for a country to continuously enhance trade competitiveness by depressing the exchange rate over a long period of time.
4. There is no simple linear relationship between the exchange rate and the current account
The exchange rate is a comparative relationship between currencies. It is affected by multiple factors such as economic growth, monetary policy, financial markets, geopolitics, and sudden risk events. To analyze changes in exchange rates, we need to look not only at trade in goods, but also on trade in services; we need to look not only at current accounts, but also on financial accounts; we need to focus not only on economic fundamentals, but also on factors such as expectations.
Looking at trade channels, historically, trade channels have played an important role in the formation of exchange rates. After the collapse of the Bretton Woods system in the 1970s, financial liberalization and globalization continued to advance. The share of global trade volume in global foreign exchange transactions fell from about 1/35 in the 1990s to 1/70 in 2025, and the correlation between trade and exchange rates gradually declined.
Looking at financial accounts, since the beginning of this century, as countries' financial assets continue to accumulate, changes in financial asset valuations and cross-border asset allocation have increased their impact on global imbalances, and spillover effects have increased. Judging from historical experience, large exchange rate fluctuations in emerging markets are often triggered by capital flows under financial accounts. The Federal Reserve withdrew from quantitative easing monetary policy in 2014-2016, and central banks in developed economies such as the US and Europe drastically tightened monetary policies after 2022, all of which triggered capital outflows and currency depreciation in emerging markets. In the first half of 2026, South Korea's current account surplus grew sharply amid the AI development boom, but the won continued to depreciate, mainly affected by capital flows; in the same period, Japan's current account surplus increased, but the yen also continued to weaken.
Judging from expectations, the countries concerned launched a tariff war in 2025, and China once faced the highest tariff threat, which affected market expectations. Although China maintained a large current account surplus during the same period, the exchange rate was still under pressure. Recently, repeated games between the US and Iran over the issue of navigation in the Strait of Hormuz have increased market uncertainty. Once news of the worsening situation appears, it will trigger an increase in international oil prices and cause the currency of some oil importers to depreciate.
In reality, there is no linear relationship between the current account and the exchange rate. On the one hand, a current account surplus does not necessarily mean that the local currency exchange rate is undervalued and needs to be appreciated. In recent years, many countries with current account surpluses, such as Japan, Switzerland, and Germany, have depreciated their local currency exchange rates. Looking at the situation in China, capital inflows from current account surpluses are also used globally through foreign investment by enterprises, banks, etc. The balance of payments maintains a basic balance, and the current account surplus does not necessarily drive the appreciation of the local currency. On the other hand, a current account deficit does not necessarily mean a depreciation of the local currency. The US has had a large current account deficit for a long time, but the US dollar remains strong overall.
5. The relevant international assessment methods are generally immature, and there is no convincing consensus conclusion
After long-term development, various equilibrium exchange rate evaluation models have been derived from academic research. The various models rely on different theoretical foundations, data sources, parameter settings, and measurement methods, and complex factors influencing exchange rates. It is very difficult to objectively measure the so-called equilibrium exchange rate level. The results of different evaluations often vary greatly, and it is difficult to form persuasive consensus conclusions until now.
Using the IMF's external balance assessment (EBA) results as the basis for undervaluing the RMB exchange rate is a misinterpretation and misuse of the evaluation results, and there is a lack of necessary professional understanding of the exchange rate. In fact, the main position of external balance assessment is an external imbalance analysis tool rather than a specific equilibrium exchange rate calculation model, which includes three modules: current account model, actual effective exchange rate model, and external sustainability method. Among them, the current account model is the most central, which aims to measure countries' current account gaps through measurement models. On this basis, the extent to which each country's actual effective exchange rate deviates is further inferred. Implicit in this approach is the assumption that there is a linear causal relationship between the current account and the actual effective exchange rate. The IMF has also specially established an actual effective exchange rate model, which includes two calculation methods: the index method and the horizontal method. The evaluation results of the above three methods vary greatly, and are even opposite in direction, indicating that the credibility of a single method is insufficient.
The IMF assesses the actual effective exchange rate and should not be misinterpreted as a view of the nominal exchange rate. The actual effective exchange rate is determined by a combination of the nominal effective exchange rate and domestic and foreign relative prices. It is more reflected in the macroeconomic structure of a country's economy, such as the supply and demand relationship. However, individual opinions intentionally or not guide the IMF's external balance assessment results to the nominal exchange rate of the RMB, or even the exchange rate of the RMB against the US dollar, and use it as an “official basis” for exchange rate accusations. In fact, the IMF's policy recommendations for China are mainly structural adjustment policies such as actively expanding domestic demand, rather than promoting the appreciation of the RMB exchange rate.
It should be noted that external balance assessments have characteristics such as relatively transparent methods and continuous iterative improvements, but they also face challenges. For example, the latest external balance assessment model spans 40 years and covers 52 economies, increasing the amount of sample data. During this period, the global economy and the industrial structure of each country changed greatly, and the model did not distinguish between structural changes and differences in the sample in time and country dimensions in parameter setting and measurement tests. Another example is that after the variables of the existing model are adjusted, the evaluation results will change significantly, indicating that the robustness of the model can be further enhanced. Furthermore, the large residual value of the model indicates that the parts of the model that cannot be explained are high, and there is room for improvement in overall interpretability. Overall, the measurement model results can be used as a reference for academic discussions, but they cannot be a strict basis for evaluating a country's external imbalances and equilibrium exchange rate levels.
6. Mitigating global imbalances requires joint action by deficit countries and surplus countries
Global economic imbalances are the result of a combination of factors such as the evolution of the industrial division of labor patterns, inherent contradictions in the international monetary system, and investment and savings gaps among countries. They are not the sole responsibility of surplus countries or countries with deficits; they require all parties to deal with it together.
All major industrial countries have historically had current account surpluses. In the 50s and 60s of the last century, the value added of the US manufacturing industry remained around 40% of the world, and was the country with the largest goods trade surplus at the time. Since the 70s and 80s of the last century, the international division of labor has undergone many adjustments. Current account surpluses were dynamically adjusted from Japan and Germany to South Korea, Taiwan, Hong Kong, Singapore, and then to China and ASEAN. The share of manufacturing in Germany and South Korea is higher than the global average, and current account surpluses have been maintained for a long time.
In recent decades, the world's major surplus countries have continuously rotated, and the main deficit countries have remained the same, which is related to the inherent contradictions in the international monetary system. In an international monetary system dominated by a single sovereign currency, major reserve currency issuers can implement debt and fiscal expansion over a longer period of time, support high consumption and low savings, and thus form long-term trade deficits. This will also weaken the country's financial constraints and manufacturing competitiveness to a certain extent, and increase debt and balance of payments risks.
The decline in trade competitiveness in some countries reflects their own structural difficulties. In some economies, energy costs are high for a long time, manufacturing costs are high, infrastructure development is lagging behind, regulatory policies are rigid, investment in innovation and digitalization is insufficient, and industrial development is dependent on the path, weakening the international competitiveness of domestic industries.
Each country should push for its own structural reforms. Deficit countries should begin fiscal consolidation to improve domestic savings rates and industrial competitiveness; surplus countries should promote consumption and investment growth. Some countries simply attribute complex international monetary system and economic structural problems to the RMB exchange rate, which is a prevarication and evasion of responsibility for their own adjustments. It is not helpful in solving the problem. In fact, it is a political operation in the context of protectionism and unilateralism.
Medium- to long-term policy commitments are more conducive to stabilizing expectations. Countries should formulate medium- to long-term policies and plans, make clear commitments and firmly implement them, and avoid “flipping pancakes” back and forth. Trying to resolve the structural problems of the global economy within one to two years is unrealistic, and a sharp shift in policy in the short term may be counterproductive. For example, the 2025 global tariff war triggered “import grabbing”, exacerbating imbalances and harming global economic growth.
7. China is actively promoting the transformation of the economic growth model and promoting the development of the global economy in a more open, inclusive and balanced direction
Since this century, the global economy has experienced many rounds of important dynamic balance processes, and China has participated deeply and made positive contributions. In 2001-2007, after China joined the WTO, it effectively expanded global supply and curbed global inflation. After the international financial crisis broke out in 2008, China vigorously expanded domestic demand, boosted the global economy and avoided falling into deflation, and its contribution rate to global economic growth stabilized at around 30%. During the pandemic, global inflation was once high, and China's supply chain system remained stable, continuing to contribute to the decline in global inflation and economic balance.
In the process, the Chinese economy itself has also experienced a profound process of structural adjustment and dynamic balance. China's current account surplus to GDP declined rapidly from a peak of 9.9% in 2007. The contribution rate of consumption to economic growth rose from 37% in 2010 to 52% in 2025, contributing strongly to the rebalance of the global economy.
China has steadfastly implemented the strategic direction and key initiatives set out in the “Fifteenth Five-Year Plan”, insisted on promoting the transformation of the mode of economic growth, expanding domestic demand and a high level of opening-up to the outside world, and contributing to a new round of global economic dynamics. Adhere to the dominance of domestic demand, vigorously boost consumption, expand effective investment, insist on the close integration of investment in goods and people, strengthen the domestic cycle, and smooth the domestic and international double cycle. Improve the business environment and provide a level playing field for all types of market players. Focus on scientific and technological innovation to promote productivity improvement. Promote inclusive economic growth, focus on increasing the disposable income of residents and households, and improve the income distribution system and social security system. Steadily expand a high level of opening-up to the outside world, accelerate to become a core market for global demand on the basis of a global manufacturing power, and use the Chinese market to provide new opportunities for countries around the world. Strengthen international economic and financial cooperation, actively participate in and promote the reform and improvement of global financial governance, and maintain global economic and financial stability.
This article was edited by the People's Bank of China, Zhitong Finance Editor: Chen Wenfang.