A market-driven RMB and the path toward global rebalancing

Editor's note: Aaron Liu is a CGTN business reporter.

The article reflects the author' views and not necessarily those of CGTN.

The People's Bank of China (PBOC), the country's central bank, has recently clarified its stance on the renminbi exchange rate, pushing back against simplistic narratives that attribute China's trade surplus and global trade imbalances entirely to currency factors.

China's exchange rate regime has steadily advanced toward greater market flexibility over more than three decades.

It operates under a managed floating exchange rate system: the RMB's value is primarily determined by market supply and demand, with reference to a basket of currencies.

The central bank does not target a fixed exchange rate, nor does it aim to dictate the currency's long-term path.

Market forces shape its pricing.

The renminbi's historical moves reflect this framework, responding to economic fundamentals rather than administrative targeting of the currency level.

Investor herding can push currencies far from their fundamental values.

Against this backdrop, policy stability and responsible management become crucial.

As Guan Tao, chief economist at Huafu Securities, notes, as a major responsible economy, China maintained RMB stability during the 1998 Asian financial crisis and the 2008 global financial crisis.

In recent years, Chinese authorities have used macroprudential policy tools mainly to curb extreme volatility amid the US Federal Reserve rate hikes and mounting headwinds for global trade.

Such interventions are consistent with standard international practice.

They are designed to mitigate short-term market shocks, rather than alter the RMB's long-term equilibrium trend.