PBOC Sets Out Authoritative Policy Stance on the RMB Exchange Rate: No Target Level, No Competitive Devaluation, No Long-Term Intervention

The RMB exchange rate, a key price in financial markets, has long drawn close attention from all sectors, and discussion has intensified recently.

On October 8 the People's Bank of China (PBOC) released its policy stance on the RMB exchange rate, stating that it will keep letting the market play a decisive role in exchange rate formation; that the central bank sets no target level for the exchange rate and does not intervene in its long-term trend, maintaining exchange rate flexibility and two-way floating; and that China's trade development stems from rising industrial international competitiveness, so China has no need and no intention to gain a trade competitive advantage through currency depreciation and has never engaged in competitive devaluation.

The PBOC also said that global economic imbalances are closely tied to the evolution of the global division of labor, the inherent contradictions of the international monetary system, and the long-standing high fiscal deficits and high consumption of some countries, and that all parties must work together to resolve them. Simply attributing a country's declining industrial competitiveness, weakened fiscal and financial constraints and complex structural problems to other countries' exchange rates amounts to shirking and evading one's own adjustment responsibilities.

Letting the Market Play a Decisive Role in Exchange Rate Formation

On China's exchange rate regime, the PBOC said China operates a managed floating exchange rate system based on market supply and demand and adjusted with reference to a basket of currencies, and it insists on letting the market play a decisive role in exchange rate formation.

This means the PBOC sets no target level for the exchange rate, does not intervene in its long-term trend, and maintains exchange rate flexibility and two-way floating, while focusing on preventing large short-term swings in the exchange rate, especially sharp short-term depreciation that could affect financial stability.

Aiming to prevent destructive short-term overshooting of the exchange rate, the PBOC uses macroprudential management tools for adjustment and expectation guidance under specific scenarios, and even conducts direct foreign exchange intervention in extreme scenarios, in order to correct herd behavior and irrational expectations in the market, especially the self-reinforcing spiral of irrational depreciation expectations.

Such measures are consistent with international rules and practice. During the 2008 global financial crisis, for example, the currencies of some emerging economies fluctuated sharply and the countries concerned carried out foreign exchange intervention to prevent excessive depreciation from triggering financial risks. In July 2026 the yen fell to a near 40-year low against the dollar at one point, prompting joint intervention by the countries concerned.

In addition, the PBOC has continued to enhance the transparency of exchange rate policy. Since 2016 China has released balance of payments and related foreign exchange data under the IMF's Special Data Dissemination Standard (SDDS), a higher international standard, steadily improving the dimensions and frequency of data releases. Responding actively to initiatives by international organizations, China will report additional foreign exchange-related data to the IMF starting in 2027.

As for changes in the level of the RMB exchange rate, since the 2005 reform the RMB has floated in both directions and has generally remained strong among major international currencies. Data show that bilaterally, the RMB strengthened from 8.27 per dollar at the July 2005 reform to about 6.7 now, an appreciation of 23% in cumulative terms. Multilaterally, Bank for International Settlements data show that the RMB's nominal effective exchange rate has risen more than 50% since the 2005 reform, while the real effective exchange rate has gained 35%.

After 2010, appreciation and depreciation cycles alternated, the two-way floating feature became more pronounced and exchange rate flexibility increased markedly. The RMB has been through three appreciation cycles and three depreciation cycles against the dollar, trading within a wide 6.04-7.35 range overall, with swings of more than 10% in each appreciation or depreciation cycle.

Looking ahead, the PBOC said that many factors affect the RMB exchange rate, that both appreciation and depreciation forces are present, and that the direction of the exchange rate remains uncertain.

Trade Development Stems from Rising Industrial Competitiveness

Recently the PBOC has said repeatedly that China has no need and no intention to gain a trade competitive advantage through currency depreciation.

This time the PBOC made clear that China's trade development stems from rising industrial international competitiveness, that China has no need and no intention to gain a trade competitive advantage through currency depreciation, and that it has never engaged in competitive devaluation.

On industrial competitiveness, data show that past rounds of RMB appreciation did not hold back China's trade development, and that China's export share did not rise faster during depreciation periods. The RMB appreciated 21% against the dollar in 2005-2008, 10% in 2010-2014 and 9% in 2020-2021, while China's share of global exports rose 2.4, 2.8 and 1.7 percentage points respectively in those periods. By contrast, the RMB depreciated 7% against the dollar in 2016 and by more than 8% in 2022, while China's share of global exports fell 0.7 percentage points in both periods.

In particular, one important structural change in China's trade in recent years is a marked decline in sensitivity to exchange rate changes. The PBOC said that in trade-related financial services, exporters and importers increasingly use hedging tools, about 30% of trade is settled in RMB and the corporate foreign exchange hedging ratio has reached about 30%, further reducing trade's sensitivity to exchange rate volatility. These ratios are expected to rise further in the future.

"China is a responsible major country and, amid repeated and intense external shocks in the past, has never engaged in competitive devaluation and has never pushed the RMB lower to promote exports," the PBOC added, noting in particular that the global foreign exchange market is so large in trading volume that it is very difficult to intervene persistently and influence it.

Multiple Factors Must Be Weighed When Analyzing Exchange Rate Moves

The exchange rate is a relative price between currencies and is affected by multiple factors including economic growth, monetary policy, financial markets, geopolitics and sudden risk events. The PBOC said that in analyzing exchange rate changes one must look not only at goods trade but also at services trade, not only at the current account but also at the financial account, and not only at economic fundamentals but also at expectations and other factors.

On the trade channel: historically, trade played an important role in exchange rate formation. After the Bretton Woods system broke down in the 1970s, financial liberalization and globalization advanced steadily, and the ratio of global trade volume to global foreign exchange trading volume fell from about 1/35 in the 1990s to 1/70 in 2025, gradually weakening the link between trade and exchange rates.

On the financial account: since the beginning of this century, as financial assets have accumulated in countries around the world, changes in the valuation of financial assets and cross-border asset allocation have had a greater impact on global imbalances, and spillover effects have strengthened. Historically, sharp swings in emerging market exchange rates have often been triggered by capital flows under the financial account. The Federal Reserve's exit from quantitative easing in 2014-2016 and the sharp monetary tightening by the Fed, the ECB and other major central banks after 2022 both triggered capital outflows and currency depreciation in emerging markets. In the first half of 2026, South Korea's current account surplus grew sharply amid the AI boom, yet the won kept depreciating, mainly because of capital flows; over the same period Japan's current account surplus increased, but the yen also kept weakening.

In reality, there is no linear relationship between the current account and the exchange rate. On one hand, a current account surplus does not necessarily mean that the domestic currency is undervalued and needs to appreciate. In recent years, quite a few current account surplus countries, including Japan, Switzerland and Germany, have seen their currencies depreciate. In China's case, funds flowing in through the current account surplus are reinvested globally through corporates and banks, the balance of payments remains broadly balanced, and a current account surplus does not necessarily drive the domestic currency higher. On the other hand, a current account deficit does not necessarily mean depreciation either: the United States has long run a large current account deficit, yet the dollar has generally remained strong.

In addition, international assessment methods remain generally immature and lack convincing consensus conclusions. Using the IMF's External Balance Assessment (EBA) results as evidence that the RMB is undervalued is a distortion and misuse of the assessment results and reflects a lack of necessary professional understanding of exchange rates. In fact, the IMF's policy advice for China mainly concerns structural adjustment policies such as actively expanding domestic demand, rather than pushing for RMB appreciation.

Easing Global Imbalances Requires Joint Action by Deficit and Surplus Countries

Easing global imbalances is a hot topic of market attention at present. The PBOC said this requires joint action by deficit countries and surplus countries alike. Global economic imbalances result from the combined effect of the evolution of the industrial division of labor, the inherent contradictions of the international monetary system and national investment-savings gaps, among other factors; they are not the unilateral responsibility of surplus or deficit countries, and all parties need to respond together.

In recent decades, the world's major surplus countries have rotated constantly while the major deficit country has remained unchanged, which is related to the inherent contradictions of the international monetary system. In an international monetary system dominated by a single sovereign currency, the issuer of the main reserve currency can sustain debt and fiscal expansion for a relatively long period, supporting high consumption and low savings and thereby generating a long-term trade deficit. This also weakens that country's fiscal and financial constraints and manufacturing competitiveness to some extent, increasing debt and balance of payments risks.

It should be noted that medium- and long-term policy commitments are more conducive to stabilizing expectations. The PBOC called on all countries to formulate medium- and long-term policy plans, make clear commitments and implement them firmly, avoiding constant flip-flopping. Trying to solve global structural economic problems within one to two years is unrealistic, and abrupt short-term policy reversals may backfire.

Looking ahead, the PBOC said that during the 15th Five-Year Plan period China will keep advancing the transformation of its economic growth model, expand domestic demand, improve the business environment and deepen high-level opening-up, so as to promote a global economy that is more open, inclusive and balanced.