People's Bank of China announced to the public on 20th, June that China will begin a new round of RMB exchange rate reform.
Then how will the RMB exchange rate evolve in the future? This is decided by two factors, first is the cross-border flowing of the international capitals, and second is the macro-economic situation and currency policy trend in domestic market.
First of all, the width of RMB exchange rate adjustment must take the risks of cross-border flowing of the international capitals into consideration. At present, though nominally China government possesses 2. 45 trillion U. S dollars foreign exchange ( forex[www. ikonfx. coml]) reserves, if deducted the possible losses of the 376 billion U. S dollars Freddie Mac and Fannie Mae bonds in United States and the foreign exchanges (forex[www. ikonfx. com]) that the foreign banks holding.
The central bank itself is holding 900 billion U. S dollars Treasury bonds, meanwhile, the foreign exchange (forex) reserves that the government remained and is available for exchanging foreign currency freely are less than 1 trillion U. S dollars.
Secondly, the direction of adjustment to RMB exchange rate also is closely related to the domestic economic situation and currency policy at present.
If RMB gets significant appreciation at this moment, no doubt, it will make the foreign exchange (forex) reserves held by the central bank face with depletion danger.