Next Year, The RMB Exchange Rate Will Fluctuate Within The 6.0-6.3 Range.

Since the late November 2014, the spot exchange rate of the RMB in the offshore market has been weakening due to multiple factors such as changes in supply and demand in the foreign exchange market.

For a while, "the renminbi will depreciate sharply", "China needs to exchange currency devaluation and Japanese yen devaluation to launch currency wars" and so on.

I do not think the current RMB exchange rate depreciation trend will continue.

Looking forward to 2015, the exchange rate of the RMB against the US dollar will fluctuate within an interval of 6.0-6.3, for the following reasons.

First, the fluctuation of the RMB exchange rate is the result of the actual operation of the market in recent years.

Since October 2012, in the total of 523 trading days, the arithmetic average of the spot exchange rate of RMB against the US dollar is 6.1630, the minimum value is 6.0412 higher than that of 14 days in January 2014, and the maximum value is 6.2878 of October 9, 2012.

During this period, the RMB exchange rate has actually formed an interval fluctuation.

In the fourth quarter of 2012, the RMB exchange rate was in a consolidation state; from the beginning of 2013 to the end of January 2014, the exchange rate of RMB basically showed a steady appreciation trend; from the beginning of February 2014 to the beginning of June, the RMB rose from the rise to the decline, and maintained a strong trend from June to mid June.

Judging from the market practice of wide fluctuation of RMB exchange rate in recent years, the RMB exchange rate may be close to the equilibrium level, and the short-term appreciation and depreciation are short of economic foundation.

Second, the central bank will play a role in stabilizing the foreign exchange market if necessary.

The people's Bank of China's monetary policy objective is "to maintain the stability of the currency value". This currency stability refers to the prevention of domestic inflation and deflation, and also the stability of the external exchange rate.

Of course, exchange rate stability is not absolute but relative concept, which requires the central bank to stabilize the exchange rate by intervening in the foreign exchange market if necessary.

After March 17, 2014, the central bank announced that the floating range of RMB to us dollar exchange rate in interbank spot foreign exchange market expanded from 1% to 2%.

This means that the central bank withdraws from the normal intervention of the foreign exchange market, but has not promised to withdraw from China's foreign exchange market completely. Its role in stabilizing the market at a critical moment helps to reduce market panic in the failure and runaway of the foreign exchange market and avoid abnormal fluctuations and overshoot of the RMB exchange rate.

Third, the further appreciation of the renminbi following the US dollar may jeopardize export and steady growth targets.

Since June 2014, under the conditions of the euro zone and Japan's easing monetary policy, the US dollar index has continued to grow sharply, rising from 79.79 to 88.64 in December 2nd, rising by 11.1%.

During this period, the performance of the RMB against the US dollar was stronger.

Therefore, since June, the RMB has appreciated by 9.7% against the euro and 14.8% against the Japanese yen.

It is expected that the US dollar index will likely remain strong in 2015 due to the further differentiation of monetary policy between Japan, the euro zone and the United States.

Under such circumstances, the further appreciation of the RMB against the US dollar will probably further hurt the export sector and jeopardize economic growth and stable employment in 2015.

Therefore, the space for further appreciation of the RMB exchange rate is limited.

The fourth, first weak RMB exchange rate is difficult to support the internationalization of RMB.

According to the person in charge of the central bank, as of now, 28 central banks have signed bilateral currency swap with China, with a total value of more than 3 trillion yuan. In 2014, the Central Bank of Switzerland, Sri Lanka, Russia, Qatar, Canada and other 5 countries signed bilateral exchange agreements.

As of October this year, China has signed RMB clearing arrangements with the central banks of 12 countries or regions. This year, it signed liquidation arrangements with eight central banks, including Britain, Germany, France, South Korea, Canada, Australia, Luxemburg and Qatar.

As of the end of October, 169 overseas institutions had entered the market of the Bank of China (601988 shares), and more than 30 central banks and monetary authorities had incorporated Renminbi into their foreign exchange reserves.

Thus, since 2014, the process of RMB internationalization has been accelerated with the main contents of external settlement, currency swap and liquidation arrangements, and the RMB exchange rate needs to be kept stable.

A devaluation of the RMB exchange rate is clearly against the goal of internationalization.

Fifth, in order to prevent cross-border arbitrage and arbitrage, the RMB exchange rate needs to maintain the necessary volatility.

In March 17th this year, the central bank once again initiated the reform of RMB exchange rate formation mechanism.

According to the "Impossible Triangle" theory, the effectiveness of monetary policy has an alternative relationship with free capital flow and exchange rate fluctuation.

The central bank further expands the fluctuation range of the RMB exchange rate, hoping to reduce its intervention in the foreign exchange market, basically withdraw from normal foreign exchange intervention, and gradually get rid of the mode of relying on foreign exchange to supply the basic currency and upgrade the domestic market.

The effectiveness of policy.

In 2015, the fluctuation of the RMB exchange rate remained strong in the US dollar and the US entered the cycle of raising interest rates, and China needed a certain degree.

Environmental conditions are especially important.

Sixth, phased international capital outflows and inflows will alternatively occur, and will also bring about fluctuations in the RMB exchange rate.

Looking forward to 2015, with the joint decisions of domestic and international factors, China's international capital flows will be dominated by staged outflows and inflows.

On the one hand, the normalization of the US monetary policy has two sides to the impact of China's international capital flows. The Fed's interest rate hike and interest rate increase may lead to marginal and phased international capital outflow by raising the term spread and narrowing the interest rate both inside and outside the country.

Our research shows that the 3 year period between China and the United States

The spread is closely related to the enthusiasm of overseas institutions to hold RMB bonds.

If the interest rate rise in the US leads to narrowing of the interest rate between China and the United States, the enthusiasm of foreign institutions to purchase RMB bonds will also decrease significantly and capital may flow out.

On the other hand, capital market volatility (VIX) may continue to decline, and credit spreads may continue to narrow. These factors will boost more international capital flows into China.

In addition, the differentiation of monetary policy in developed countries is likely to continue in 2015.

On the one hand, the normalization of monetary policy in the US has brought international capital outflows in some stages. On the other hand, the unconventional loose monetary policy in the euro area and Japan may have some hedging effects.

In view of this, it is more appropriate to see the situation of China's international capital flows in 2015 and its impact on the RMB exchange rate with a dialectical, changeable and fluctuating attitude.

In summary, the possibility of RMB exchange rate fluctuation in 2015 is relatively large.