Of course, the exchange rate system pegged to a basket of currencies also has its inherent defects: first, strictly pegged to a basket of currencies will lose the initiative to adjust the exchange rate, and the change of the local currency exchange rate is passively adjusted according to the exchange rate of a basket of currencies; Secondly, the change of local currency exchange rate does not reflect the market supply and demand of local currency. Therefore, the exchange rate system pegged to a basket of currencies does not conform to the direction of market-oriented reform or market-oriented reform. Third, pegged to a basket of currencies cannot avoid the impact of non-exchange rate factors on the balance of payments. However, does the exchange rate system adjusted with reference to a basket of currencies lose some benefits of pegging to a basket of currencies while avoiding the disadvantages of pegging to a basket of currencies? Comparing the possible change patterns of RMB exchange rate under these two exchange rate systems is helpful to identify the advantages and disadvantages of "adjusting with reference to a basket of currencies".

As mentioned above, under the strict exchange rate system pegged to a basket of currencies, the exchange rate changes of currencies are passively changed according to the exchange rate changes of a basket of currencies. Under the reference basket exchange rate system, the currency will change in three ways:

One is the daily fluctuation, that is, the fluctuation within plus or minus 3‰ of the closing price of the previous trading day every day.

The second is to adjust the middle price with reference to the currency basket. That is, when the exchange rate of some currencies in the currency basket fluctuates greatly, so that the closing price of the US dollar against the currency is at the end of the range and cannot cover this fluctuation range, the monetary authorities can re-determine a middle price with reference to the currency basket instead of using the closing price of the previous day as the middle price of the next day.

The third is to expand the floating range of exchange rate when necessary, that is, the monetary authorities can expand the fluctuation range to a larger range when necessary. To expand the floating range, it is necessary to reform and adjust the foreign exchange trading market, the trading system between designated foreign exchange banks and residents and enterprises, the management system of foreign exchange positions of banks and the compulsory settlement and sale of foreign exchange, otherwise it will affect the trading efficiency of the whole foreign exchange market. What needs to be emphasized in particular is that even the fluctuation within the daily interval is not completely free. Monetary authorities not only buy and sell at both ends of the range, but also can trade at any price in the range as a member of the foreign exchange trading market. Therefore, the monetary authorities actually have the ability to determine the daily closing price.

It can be seen that the biggest difference between adjusting with reference to a basket of currencies and keeping a strict eye on a basket of currencies is that the former retains the initiative and control of the monetary authorities in adjusting the exchange rate, but cannot enjoy the benefits brought by stabilizing exchange rate expectations, while the latter replaces the arbitrary intervention of the central bank with clear rules, which can quickly stabilize exchange rate expectations, but at the same time loses the initiative of the monetary authorities in adjusting the exchange rate. In fact, this is an old policy issue, which compromises between camera selection and rules.

Potential risks and countermeasures

At the same time, we should also realize that the potential risks that may be brought about by referring to a basket of monetary systems are mainly as follows:

First, the large-scale capital inflow brought about by the expected strengthening of appreciation. The balance of payments is still an important basis for adjusting the currency exchange rate, and the low appreciation obviously cannot reflect the undervaluation of the currency exchange rate reflected by a country's balance of payments (especially the huge trade surplus). Therefore, the low appreciation rate not only strengthens the expectations of those who once thought that the currency would appreciate, but also makes the promise of maintaining the stability of the currency exchange rate no longer credible, which hits the expectations of those who think that the currency will remain stable, and will make these people quickly join the ranks of those who have expectations of currency appreciation. The result is a large-scale conversion of foreign exchange into currency.

Second, short-term operations may face speculative shocks. Adjusting the currency exchange rate with reference to the currency basket is limited to a certain range, with the largest fluctuation range, which is sometimes incompatible. As mentioned earlier, the floating range sometimes can't digest the changes in the value of the currency basket. Although the monetary authorities did not announce the composition of the basket, and pointed out that the currency basket is only a reference for currency exchange rate adjustment. However, a meaningful currency basket must include at least USD, EUR and JPY. Therefore, once the exchange rate between the US dollar, the euro and the Japanese yen changes drastically, it is entirely possible for the market to expect the closing price of the currency exchange rate, even at the end of the floating range, which is not enough to reflect the changes in the value of the currency basket, and it is entirely possible for the monetary authorities to adjust the middle price in the future by "referring to the currency basket". In this case, the currency is more likely to be hit by short-term speculation.

Then, for sustained and large-scale capital inflows, some possible countermeasures are:

1. Clearly announced the adoption of the exchange rate system pegged to a basket of currencies, and announced the composition of the currency basket. So as to give the market a clear law of currency exchange rate change. Transfer the expectation of currency appreciation to the expectation of depreciation of major currencies in the basket. However, this will temporarily lose the flexibility to adjust the currency exchange rate. In international communication, the weight of negotiation will also be lost.

2. Announce the expansion of the floating range of currency exchange rate, and promise not to change the range for a certain period of time. This requires rapid reform and adjustment of the foreign exchange trading market, the trading system between designated foreign exchange banks and residents and enterprises, the bank's foreign exchange position management system and the compulsory foreign exchange settlement and sale system.

Third, through the intervention of the monetary authorities in the foreign exchange market, the currency exchange rate fluctuates repeatedly in a narrow range. Although this method may have some effect, it is not a long-term solution, and the actual effect depends on market psychology.

Fourth, stricter capital controls. This is the last resort to hinder reform.

5. The currency has greatly appreciated. This is the simplest way to change the expectation of appreciation in the short term, but excessive appreciation will have a greater impact on the real economy.

Each of the above measures has its advantages and disadvantages. But on the whole, the first measure is relatively superior in the short term, and the second measure is relatively superior if there is enough time.