On April 10, 2022, the Macro-Finance Salon (No. 179) or the 22nd session of the series entitled “Finance Propels the Opening of the Fourteenth Five-Year Plan”, co-hosted by the IMI and the EMBA Center of the School of Finance, RUC, was held online and live streamed. The theme of this salon was “The Exchange Rate Myth Against the Backdrop of the Russia-Ukraine Conflict”.

Zhang Yu, IMI Research Fellow and Chief Macro Analyst at Hua Chuang Securities first delivered a keynote speech. This speech was followed by a discussion among Gao Haihong, Research Fellow at Institute of World Economics and Politics, Chinese Academy of Social Sciences, and Head of the Research Center for International Finance, Institute of World Economics and Politics; Guan Tao, Global Chief Economist at BOC International; He Xiaobo, General Manager at BOCHK Offshore RMB Exchange Center; and Lu Jinuo, IMI Research Fellow. The salon was moderated by Zhao Xijun, Co-Dean of the Academy of China Capital Market, RUC.

In her keynote speech, Zhang Yu analyzed the causes of the yuan’s strong but proper gain, and the possibility and impact of future exchange rate volatility against the background of the Russia-Ukraine conflict. First, the yuan has been gaining steadily despite the Russia-Ukraine conflict and the continuous appreciation of the US dollar. This may be attributed to the following three factors. (1) There is no policy guidance on the direction of the yuan’s exchange rates. (2) China’s economic fundamentals are relatively strong, and a huge deficit or capital outflow has not been observed. (3) Relatively strong depreciation expectations have not been observed and expectations remain stable. Second, by examining an indicator similar to the export share, namely the proportion of China’s trade volume in 23 economies worldwide, it is found that the yuan has strengthened less than 23%, indicating that the yuan’s exchange rates fluctuate within a basically proper range. It is therefore contended that the yuan’s performance has been outstanding but remains in a proper range. Third, whether massive foreign exchange to be settled fueled by robust exports in the past two years can bolster the value of the yuan depends on domestic orders. If sustained growth is secured in China and the PMI gains an upward momentum, then it is highly likely that funds can be recovered through foreign exchange settlement, thereby lending solid support to the value of the yuan. In conclusion, market confidence in steady domestic growth and to which extent sustained growth can be secured are key to maintaining the stability of the yuan’s exchange rates. Fourth, in case that the yuan’s exchange rates fluctuate violently subsequently, such fluctuations may impact the stock market in the short term by affecting foreign exchange gains and losses and income statements of listed companies. As regards the bond market, the impact of such fluctuations on China’s dollar bond market may be more distinct and prominent than that on China’s domestic bond market.