In the long run, opening the capital market is an important institutional innovation to hedge the pressure of RMB depreciation. The reasonable pricing of a country's exchange rate by international investors includes institutional factors such as financial openness that affect the country's exchange rate. A country's financial openness is not enough or its financial market is not perfect, which will easily lead to the undervaluation of its own currency and the instability of transnational capital flows. Therefore, stabilizing the exchange rate is very important for China's international payments.
Extended data:
Precautions:
1. Under the condition that the exchange rate of USD/RMB is set at 7, we have two discoveries based on Goodhart's law. Once the ceiling is broken, the exchange rate of USD/RMB will rise rapidly, far exceeding the original ceiling, just as the pressure has been accumulating and then suddenly released, which is quite explosive.
2. Even if the upper limit is not broken, the pressure is still accumulating, and the observed market fluctuation will still be at a very low level, but the risk of future price fluctuation is rising rapidly. As for the information conveyed, it is clear that special attention should be paid to the complexity of exchange rate risk management in the case of exchange rate boundaries.
3. The improvement of the maturity of the capital market and a reasonable foreign exchange management system will help to enhance the attractiveness of RMB-denominated assets, and ultimately lay a good market foundation for the market-oriented and reasonable pricing of RMB exchange rate.
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