Influence of RMB Exchange Rate Fluctuation on China’s Current Account Balance and Countermeasures
LIU Yao
Since the beginning of 2022, the increasingly fluctuated RMB exchange rate may have cast an impact on China’s current account balance. In light of theories on the correlation between the exchange rate and the current account balance, as well as the stylized facts illustrating changes in RMB exchange rate and China’s current account balance, we can see that first, changes in RMB exchange rate will affect the relative size of China’s current account in the long run. Second, the divergence between China’s trade balance and its current account in recent years may have mitigated the impact of RMB exchange rate on the country’s current account. And third, the fluctuated RMB exchange rate has engendered disturbance in China’s current account via the valuation channel. On the macro level, stabilized current account balance calls for consistent efforts of government decision makers to facilitate RMB exchange rate regime reform, the diversified foreign exchange reserves, and RMB internationalization. On the micro level, companies with overseas business need to tighten up their precautions against foreign exchange rate-related risks, so that their closing balance will not drop significantly. For more details, please refer to pages 3-7 of Issue 5 of Overseas Investment and Export Credits, 2023.
News Release
2023