Thread by @ChinaFinance40

Dr. Zhang Bin at CASS suggests to give full play to the flexibility of the #RMB exchange rate as a buffer for China’s macroeconomic stability: 1/6

cf40.com/en/news_detail…

Whether it is to deal with the difference in relative demand changes at home and abroad, or to handle the impact of international capital flows, maintaining a flexible RMB exchange rate would be a major coping strategy. 2/6

Under a flexible exchange rate regime, RMB will depreciate to a certain extent if the US #economy stages a strong recovery while the recovery of the Chinese economy marginally weakens, which’ll have a positive effect on increasing aggregate demand and preventing deflation. 3/6

The #dollar often appreciates when there is strong economic recovery in the US, thanks to the return of global funds. In such case, an exodus of funds from China by foreign investors will likely cause turbulences in the Chinese capital market and bring down #asset prices. 4/6

Ensuring that the RMB exchange rate has sufficient flexibility to fully reflect changes in the value of the USD in a short period of time will make the continued flow of funds away from China unprofitable for foreign investors. 5/6

For China, maintaining sufficient exchange rate flexibility is the first line of defense against foreign #Capital outflows, Dr. Zhang says. 6/6