Exchange Rate Risk Management Of Commercial Banks In The Reform Of The Rmb Exchange Rate System

In 2005, July the 21st, The People's bank of China carried out the reform of the Renminbi exchange rate, and there were two aspects concerned with this reform. In the first place, the formation mechanism of the exchange rate is perfected, that is the exchange rate of Renminbi no longer pegs down the US dollar singly, but floats under management according to the supply and demand in the currency market as well as the "currency basket", which is composed of several primary currencies. In the second place, the exchange rate of Renminbi is adjusted reasonably. And that is the exchange rate of Renminbi makes an appreciation of 2% to the US dollar, thus, 1 dollar is converted to Renminbi as 8.11 yuan. The more fluctuant Renminbi exchange rate will challenge the risk management of the commercial banks which have been used to the environment that the Renminbi exchange rate was tightly pegged to US dollar. Because the US dollar exchange risk which commercial banks hold is very big and in the form of pegging to US dollar and commercial banks have not thought about foreign exchange risk, commercial banks have not any foreign exchange risk managements. The reform of the Renminbi exchange rate has changed the situation that the Renminbi exchange rate was tightly pegged to US dollar so commercial banks have to see the question which is about foreign exchange risk managements again. At the same time, the up or down of the new Renminbi exchange rate will supply a chance to the commercial banks' foreign exchange risk management. The reform of the Renminbi exchange rate makes the foreign exchange risk of commercial banks more common . With the foreign exchange risk becoming big, the gusts' foreign exchange risk of commercial banks will makes commercial banks more risk. So, when encouraging commercial banks' innovating in related business, commercial banks' self-control mechanism and risk management system should be employed to control the risks, and financial market and tools adapted to the new exchange rate system should be used for the commercial banks in their risk management.This article reviews the general theories of exchange rate risk management of commercial banks, and specifies commercial bank exchange risk management method; introduces the content of the reform of Renminbi exchange rate form as well as the Renminbi exchange rate trend, and gives an example to analyze the influence which has been made by the reform of Renminbi exchange rate form to the commercial banks' profit earning. This article also analyzes the questions which commercial banks' foreign exchange risk management before the reform of Renminbi exchange rate and the changes after that. Then the article proposes some politic suggestions for commercial banks to against foreign exchange risk.