Study On The Structural Changes Of RMB Exchange Rate Pricing Mechanism

Since August 11,2015 China took the so-called "8.11 exchange reform" on its currency-RMB,the internationalization of the RMB has been accelerating and the RMB exchange rate pricing mechanism has also undergone some important changes.The People's Bank of China(hereinafter referred to as the "central bank")has gradually marketed the pricing of the central parity exchange rate of RMB against US dollar,forming a pricing mechanism with reference to the previous day's closing price and the RMB currency basket.In December 1,2015,IMF(International Monetary Fund)announced that the RMB would join the SDR(SDR)in October 1,2016.In the second half of 2016,the RMB devaluation trend became more and more obvious.On the one hand,with the strong performance of the US dollar in 2016,participants in the foreign exchange market have formed a depreciation expectation on the exchange rate of RMB.And on the other hand,the change in pricing mechanism could explain some of the causes of depreciation of the exchange rate of RMB against the US dollar.Furthermore,the year of 2016 is the first full year after the "8.11 exchange reform".In this year,the market trend of the annual dollar index,RMB central parity and RMB exchange rate index(CFETS)has showed an intriguing asymmetry.So how to explain such asymmetry is important to study the impact of the RMB pricing mechanism on the RMB exchange rate market.Firstly,this thesis fully surveys the factors that influenced dollar/RMB central parity since early 2015,and analyzed the structural changes in dollar/RMB central parity from Jan.1 2015 to Jul.15 2016,by using the latest developed GFL algorithm.As researches show,RMB central parity has undergone two structural changes during this period,and RMB pricing mechanism becomes increasingly market-oriented,with the exchange rate gap between home and abroad being narrowed.RMB central parity mechanism based on closing rate and exchange rate change of a basket of currencies is gradually established;Secondly,on the condition that US dollars appreciates and RMB bears the depreciation expectation,there could be three reasons to explain the continued depreciation of RMB against US dollars since October 2016: the RMB pricing mechanism,the depreciation expectation of RMB and the economic fundamentals of China.By analyzing the asymmetric movements of the central parity of the RMB exchange rate,the RMB exchange rate index and the US dollar index and,we will try to explain the reasons of the asymmetry mentioned above and analyze the problem of the continuous depreciation of the RMB.The market-oriented reform of RMB and the process of internationalization of RMB,coincide with the situation that US Federal Reserve raise its interest rate and the US dollar come into its strong cycle.So how to control the RMB devaluation risk and how to solve the concerns of our US dollar reserves are worthy of careful grasp and consideration.