PBOC Sets Out Its Exchange Rate Policy Stance: Where Does the RMB Go From Here?

"China's trade development stems from rising industrial international competitiveness. China has no need and no intention to gain a trade competitive advantage through currency depreciation, and has never engaged in competitive devaluation."

On the first working day after the National Day holiday, the central bank set out its policy stance on the RMB exchange rate. The timing of the statement responds to recent international concern about the RMB exchange rate. On one hand, discussion of the RMB exchange rate has increased internationally, with some overseas politicians and research institutions reducing international trade issues to exchange rate issues. On the other hand, since the start of this year the dollar index and US Treasury yields have risen relatively fast while non-US currencies have depreciated broadly, yet the RMB has generally continued to appreciate against the US dollar.

From a market perspective, after breaking above the 6.70 mark in mid-September the RMB has entered a relatively mild consolidation phase. The market is looking to policy signals to point the way forward.

The PBOC made clear this time that since 2025 the RMB exchange rate has floated in both directions and appreciated in an orderly manner. Looking ahead, many factors affect the RMB exchange rate, both appreciation and depreciation forces are present, and the direction of the exchange rate remains uncertain.

What Did the PBOC Say? Market Supply and Demand Set the Price, the RMB Is Appreciating in an Orderly Manner

On the RMB exchange rate, the PBOC restated its consistent position: let market supply and demand determine the exchange rate automatically; the central bank is responsible only for focusing on preventing large short-term swings in the exchange rate, especially sharp short-term depreciation that would affect financial stability. In other words, the central bank concentrates on controlling risk and leaves the rest to the market.

The PBOC said the global foreign exchange market is so large in trading volume that it is very difficult to intervene persistently and influence it. Daily global foreign exchange turnover in 2025 was close to $10 trillion, of which average daily RMB foreign exchange turnover exceeded $800 billion, with offshore market trading accounting for about 80%. Every transaction affects the exchange rate, and a central bank basically does not have the intervention capacity to influence the medium- and long-term trend of the exchange rate; nor can a country continuously strengthen its trade competitiveness by keeping its currency low over the long run.

Taking the 2005 reform as a starting point, the PBOC presented the long-term path 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. 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, since the 2005 reform the RMB's nominal effective exchange rate measured by the Bank for International Settlements has risen more than 50%, 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 cycle.

Since 2025 the RMB exchange rate has floated in both directions and appreciated in an orderly manner, gaining about 9% cumulatively against the US dollar. Especially since the start of 2026, with the dollar index and US Treasury yields rising relatively fast and non-US currencies depreciating broadly, the RMB has generally continued to appreciate against the US dollar.

Where Does the RMB Go? No Clear Undervaluation or Overvaluation Now, and the Direction Is Uncertain

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

On the RMB's direction, a research report by Peking University's National Economic Research Center analyzed that, on one hand, China's economy is relatively stable and high-tech industries are growing rapidly, providing solid support for the stability of the RMB's value; on the other hand, the latest data and statements by officials of major economies suggest that further tightening of global liquidity cannot be ruled out. It expects the RMB exchange rate to fluctuate both ways within a 6.65-6.74 range in October 2026.

Wang Qing, chief macro analyst at Orient Gold Credit Rating, told a Beijing News Shell Finance reporter that the RMB exchange rate against the US dollar is currently broadly within a reasonable equilibrium range, with no clear undervaluation or overvaluation. The RMB may have room for modest short-term appreciation, but substantial appreciation is unlikely.

Wang Qing expects the RMB to edge up from around 6.7 now to about 6.6 against the dollar by year-end; next year, as China's export growth retreats from a high level and the trade surplus declines, appreciation pressure will naturally ease. He recommends focusing on changes in China's export growth and the dollar index, the two main factors currently affecting the RMB exchange rate.

The market generally judges that China's exports will maintain high growth of around 20% before year-end, and that relatively large-scale foreign exchange settlement demand will continue to provide strong support for the RMB.

Pan Xiang, a macro and FX innovation analyst at Nanhua Research Institute, told the reporter that exports are the core driver of RMB appreciation this year, and that with the global economy generally strong in the fourth quarter, China's export fundamentals still have support.

Overall, the upward appreciation trend of the RMB against the dollar in the fourth quarter is unchanged, though the pace will differ markedly: in October, disturbed by a temporarily stronger dollar index, appreciation will be relatively gradual; at year-end, combined with the seasonal wave of foreign exchange settlement and positive expectations around the US midterm elections, appreciation momentum will strengthen significantly, with the onshore USD/CNY rate seen trading in a core 6.65-6.75 range in the fourth quarter.

The macroeconomics team at Soochow Securities said that with the dollar fluctuating in a firm range and central banks in Europe, the US and Japan gradually raising rates, the RMB does not have a basis for substantial appreciation. Referring to the two RMB appreciation cycles since the August 11, 2015 exchange rate reform and the central bank's pattern of countercyclical foreign exchange adjustment, in the base case the RMB may still have modest appreciation room driven by year-end settlement expectations, but the offshore USD/CNY rate is likely to fluctuate both ways around a 6.60-6.75 center.

How Does It Affect Ordinary People? Companies Should Put "Preserving Value" First; Overseas Shopping and Study Costs Will Fall

The exchange rate has never been just a number in financial markets. It bears on the orders and profits of foreign trade companies, on cross-border investment, household asset allocation and RMB internationalization, and is closely tied to the future direction of China's economy.

Today the RMB exchange rate operates in a huge international market with diverse participants and extensive financial linkages. In such a market, the central bank said, the exchange rate is affected by many factors including economic growth, monetary policy, financial markets, geopolitics and sudden risk events, and bears no simple linear relationship with the current account. China has no need and no intention to gain a trade competitive advantage through currency depreciation, and has never engaged in competitive devaluation.

Exchange rate volatility also has cycles and elasticity, and poor control can bring risks. For the growing number of Chinese companies expanding overseas or with a large share of import-export business, exchange rate changes are becoming a cost that cannot be ignored, which may mean companies need to strengthen the concept of "risk neutrality" and hedging and must not bet one-way in the foreign exchange market - they should put "preserving value" first rather than seeking "value gains" from exchange rate swings.

For importing industries and ordinary residents, when the RMB appreciates the cost of overseas online shopping, studying abroad and outbound travel falls, and the cost of buying overseas commodities and chip components declines; when the RMB depreciates, import costs rise and indirectly pass through to some consumer goods prices.

Wang Qing advises companies, where conditions permit and costs are controllable, to make greater use of foreign exchange derivatives such as options and forwards to manage foreign currency exposure. Against the backdrop of the RMB's recent continued appreciation, expanding the scale of RMB cross-border settlement is an effective way for foreign trade companies to avoid exchange rate risk. Individuals buying foreign exchange should adhere to the "real demand" principle. For individuals investing in USD deposits, exchange rate volatility has a considerable short-term impact, and investors should make reasonable arrangements based on their own risk appetite and funding needs rather than considering interest rate differentials alone.