PBoC Says All Is Well, Can Handle Yuan Speculators

RMB exchange rate remained generally stable against a basket of currencies in 2015
Further enhancing the decisive role of market and the two-way flexibility of RMB exchange rate is consistent with the direction of the RMB exchange rate regime reform. The RMB exchange rate will reflect, to a larger extent, the dynamic of market supply and demand, and refer to a basket of currencies, and it will move in both directions. Nevertheless, it is worth noting that the market force for the exchange rate to follow is the supply and demand in relation to the real economy, not the pro-cyclical and leveraged speculative forces on the foreign exchange market. Speculators always seek to gain from their speculative behaviors. But these transactions are not based on demand in the real economy and do not reflect real market supply and demand. They only lead to abnormal fluctuations of RMB exchange rate and send misleading price signals to the market. PBC is capable of maintaining the RMB exchange rate basically stable at an adaptive and equilibrium level against those speculators.

In 2016, the RMB exchange rate regime will continue to be based on market supply and demand and with reference to a basket of currencies. We expect that the exchange rate will move in both directions with flexibility. Moreover, the RMB exchange rate policy will also play a bigger role in the automatic adjustment of the balance of payments.

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