(1) has the function of spontaneously adjusting the balance of payments; (2) help to curb large-scale foreign exchange speculation; (3) It frees the government from the constraint of fixed exchange rate system on economic policy autonomy; (4) stronger vitality to adapt to the world economic environment; (5) It is helpful to improve the efficiency of resource allocation.
However, compared with the fixed exchange rate system, the floating exchange rate system also has its shortcomings:
(1) Exchange rate fluctuations bring foreign exchange risks to international trade and international financial activities, which will hinder their smooth development to some extent. (2) It weakens the monetary discipline under the fixed exchange rate system and encourages the inflation tendency of monetary policy. The government does not need to curb inflation to fulfill its obligation to maintain a fixed exchange rate. (3) It will fuel the financial bubble, that is, the price of financial assets is higher than its actual value. (4) Under the floating exchange rate system, currencies linked to the exchange rate system are particularly vulnerable to the impact of international speculative capital.
The reform of RMB exchange rate system from 65438 to 0994 established a single and managed floating exchange rate system based on market supply and demand. In July 2005, a single and managed floating exchange rate system was implemented based on market supply and demand and adjusted with reference to a basket of currencies. The so-called "single" refers to the combination of the official exchange rate and the foreign exchange swap market exchange rate before the reform. After 1985, China implemented the dual exchange rate system of official exchange rate and foreign exchange swap price. The reform of 1994 merged the two exchange rates to form a single exchange rate. The so-called managed floating based on market supply and demand mainly refers to: (1) designated authority.
Banks dealing in foreign exchange, that is, designated foreign exchange banks, buy and sell foreign exchange in the national foreign exchange trading center in accordance with market trading rules; (2) Exchange rate fluctuation exceeds a certain range determined by the government. The People's Bank of China intervenes in the market by buying and selling foreign exchange; (3) According to the price formed in the inter-bank foreign exchange market the day before, the People's Bank of China announced the exchange rate of RMB against the US dollar and other major currencies on that day; (4) On this basis, the designated foreign exchange banks are listed in the floating range specified by the People's Bank of China to buy and sell foreign exchange to customers.