There are two "anchors" of Renminbi exchange rate, one is currency basket, and the other is US dollar. However, now the market is still concerned about the dollar. In this regard, the Chinese Central Bank has finally made a formal statement on the Renminbi exchange rate, highlighting the exchange of Renminbi against the currency basket is experiencing significant appreciation. We believe that previous the Central Bank did not reserves of foreign exchange to "confront" with the market, and that is a good short-term strategy, yet for investors who intend to preserve and increase the value of their assets, it would not be wise. Under the mechanism of "closing price + currency basket”, the Central Bank tolerated Renminbi exchange rate’s relatively long-term devaluation, yet that costs losses in foreign exchange reserves, making the market unable to clear for long-term.
