Research On The Currency Basket Of RMB Exchange Rate

Since July 21,2005, China began to apply a managed floating exchange rate system which implement on market supply and demand as the foundation and reference to a basket of currencies conditioning.It mean that China began to reform the RMB exchange rate formation mechanism under the prerequisite of maintaining controllability and activity.Since the central bank did not disclose the RMB currency basket currency composition and the corresponding weights, and our country has been applied the exchange rate system which pegged to the dollar,industry scholars are interested in whether China had applied a managed floating exchange rate system which implement on market supply and demand as the foundation and reference to a basket of currencies conditioning or not,and they are interested in the constitute and the weights of RMB basket.On August 11,2015, the central bank announced that before the daily inter-bank foreign exchange market trading,the market maker should submit the Quoted price base on the market. The move is considered a symbol of the real exchange rate of the RMB exchange rate. On December 11,2015, China foreign exchange trading center released CFETS RMB exchange rate index and publish the CFETS index basket currency composition and the corresponding weights in Chinamoney. Industry generally believe that the RMB exchange rate index will help to guide the market to change the past habits which mainly focus on the RMB against the U.S. dollar bilateral exchange rate and gradually began to reference to a basket of currencies to calculate the effective exchange rate of RMB and make RMB exchange rate regime to a managed floating.Under this background,after reading the relevant articles,this article comb the relevant articles firstly and then make a detailed introduction of exchange rate system which reference to a basket of currencies.Then by combining the macro economic and foreign trade situation of China,we believe that the target of RMB exchange rate system is to stay the stability of foreign trade and thus we construct a currency model of RMB. After testing the model,we calculated the weights and then compare the different values.Finally are the conclusions and the recommendations.