The Impact Of Central Bank Communication On RMB Exchange Rate In China

Before the 1990s,central banks in most countries were accustomed to applying "unexpected" policy stimuli to the policy practice and remained relatively "silent" before and after the policies' formulation and implementation,so as to reduce public response in advance therefore maximize the policy effect.However,with the continuous development of economic theories,economists find that economic subjects have heterogeneous expectations for the same policy stimulus.Central banks have questioned the rationality of "mysticism" one after another and instead began to study "transparency in monetary policy" and gradually shifted the style of policy operation to "transparency ism".As the research and practice deepens,central banks have found that active communication to the public of some relative information such as the current monetary policy,economic situation and trend of the future monetary policy can help to reduce the information asymmetry between the central bank and the economic subjects,strengthen the economic subject's understanding of the central banks' policy intentions,and form more rational expectations.Then they can take timely economic behaviors that central banks agree with,thus contributing to the better realization of policy objectives.Therefore,in the past 20 years or so,faced with the turbulent international economic environment,more and more central banks have gradually reduced actual interventions and chosen to increase communication interventions,and through reasonable communication system construction and communication channel design to guide public expectations.The People's Bank of China also explored the establishment of the communication system for China's central bank based on our national conditions.At the same time,China is playing an increasingly important role in the global economic market.In particular,after the international monetary fund officially included the RMB in the Special Drawing Rights(SDR)currency basket,RMB settlement has become more common,and the recognition and international status of the RMB have been greatly enhanced.According to relevant studies,a relatively stable exchange rate can stabilize investor confidence,expand the scope of economic entities' participation in cross-border economic activities,facilitate international trade and investment,and attract international long-term capital.Maintaining the relative stability of the RMB value is an important goal pursued by the central Bank of China at the current stage of RMB internationalization,which is in line with the demand of China's economic growth.This paper discusses the mechanism of the central bank's influence on the exchange rate through the signal channel and the coordination channel.Through signal channels,the central bank directly affects the expectations of economic entities in the short and long run,thus affecting the exchange rate.Through the comparative analysis of the status quo of China's central bank communication with those in the United States and Europe who have rich experience in communication.This paper finds that there is still a big gap between China's central bank and the developed economies in terms of policy communication:low frequency,less communication content,lack of the communication in the monetary policy decision-making process;implicit and concealed communication language;relatively simple communication channel is relatively simple;late risk warning.At the same time,the information asymmetry in the market can be alleviated through coordination channels,and the effect of actual policy intervention can be strengthened to affect the exchange rate indirectly.Based on the data of the People's Bank of China and the monthly average exchange rate of the RMB from January 2006 to December 2018,this paper uses the SVAR model to empirically analyze the impact of China's central bank communication on the RMB exchange rate.The result shows that:(1)As long as the central bank release the signal of easing monetary policy or policy intentions of RMB devaluation,whether in oral or written communication,the RMB exchange rate can rise;On the contrary,if the central bank Reveal the policy intention of tightening monetary policy or RMB appreciate,RMB exchange rate decrease.That is,the communication on RMB exchange rate can have an impact consistent with the central bank's policy intention.(2)Communication between our central bank has played a certain role in RMB exchange rate fluctuations,but due to the lack of smooth signal transmission,there is still a time lag.(3)In the short run,verbal communication of our central bank has a greater impact on the RMB exchange rate than written communication,and written communication lags behind verbal communication.Finally,based on the theoretical and empirical analysis results of the impact of the China's central bank communication on the RMB exchange rate,this paper puts forward policy suggestions for the existing problems in the communication practice of the people's bank of China:Continue to adhere to the multi-channel communication system of the central bank;Increase the frequency of communication and improve the timeliness of central bank communication;Improve the quality of central bank communication;Improve communication effectiveness and pertinence.