On June 29th, Macro-Finance Salon (No. 211) was jointly organized by IMI and the Money and Finance Department of the School of Finance of RUC. Speakers included Hong Hao, Chief Economist of Grow Investment Group; Tan Xiaofen, Professor at the School of Economics and Management of Beihang University; Xiao Lisheng, Director of the Global Macroeconomic Research Office at the Institute of World Economics and Politics, Chinese Academy of Social Sciences; and Pang Ming, Chief Economist and Head of Research for Greater China at JLL. They provided insights into the recent fluctuations in the Yuan's exchange rate.

During his keynote speech, Hong Hao emphasized that the current "shadow exchange rate" of the Yuan is weaker than before China's accession to the World Trade Organization in 2001. He also mentioned that the nominal exchange rate of the Yuan is weaker when measured against its long-term trend represented by the "850 cycle line." Furthermore, the real interest rate of the Yuan is currently facing the most significant pressure in the past two decades. Despite this, the real exchange rate of the Yuan has reached its cyclical low point of the past seven years. Nevertheless, reaching the cyclical low point does not necessarily imply that the Yuan will strengthen, but the scope for further substantial depreciation is limited.

The long-term trend of the Yuan's exchange rate is highly correlated with China's exports and the U.S. current account deficit. The latter two variables lead the Yuan's exchange rate trend. With the return of manufacturing to the U.S. and a reduction in the U.S. current account deficit, the market expects that the strong momentum in exports will be difficult to sustain in the coming months, which has already been reflected in the recent fluctuations in the Yuan's exchange rate.

The interest rate differential between China and the U.S. has reached one of the widest levels in nearly twenty years. Since the outbreak of the pandemic, China's monetary policy has consistently maintained a "self-reliance" approach. While the Federal Reserve has implemented historically significant interest rate hikes, the People's Bank of China has maintained loose macro liquidity. Moreover, data on foreign exchange settlements and sales and foreign exchange deposits indicate no clear signs of central bank intervention in the exchange rate. China's current monetary policy is independent, and exchange rate fluctuations are market-driven. Therefore, the recent movement of the Yuan should be more related to cross-border capital flows. Fundamentally, China's labor productivity has bottomed out and started to recover, which influences the exchange rate trend. Additionally, the non-deliverable forward price of the Yuan has also rebounded, indicating that the market's expectations for the Yuan's movement in the next twelve months have begun to improve.

Following the keynote speech, the participants engaged in in-depth discussions on the driving factors and future trends of the recent Yuan exchange rate fluctuations.

Translated by He Sijia