The RMB Exchange Rate Mechanism Still Has Room For Optimization.

When the International Monetary Fund (IMF) released the preliminary findings of the annual review of China's economy, it made clear for the first time that the RMB exchange rate was no longer underestimated, and that it would work with China to achieve the goal of bringing the renminbi into the SDR basket.

BOC Hongkong reported on Wednesday that the current RMB exchange rate regime still has much room to optimize, but the exchange rate is no longer underestimated.

Zhuo Liang, senior economist at Bank of China in Hongkong, said in today's report that IMF has long argued that the RMB exchange rate is too low. This change in attitude is of great significance and is in sharp contrast to the US authorities who still insist on undervalued RMB.

However, the stance of IMF does not mean that the probability of RMB joining the SDR basket in 2015 will increase significantly.

He thinks, on the one hand, IMF points out that RMB is added.

It is only a matter of time, but it has not been explained in detail.

On the other hand, the statement believed that RMB exchange rate flexibility should be improved as soon as possible, and suggested that the exchange rate should be effective floating in 2 to 3 years.

In other words, before changing the basket of SDR currencies, IMF may want to see further reform of the RMB exchange rate.

The report considers that

The decision to make a basket of currencies with SDR inevitably involves various political considerations.

But if it is purely economic analysis, there is no evidence that the RMB is undervalued.

From July 2005 to April 2015, the RMB appreciated by 33.5% against the US dollar.

But IMF and other international organizations should not just focus on the exchange rate of the renminbi against the US dollar.

According to the data of the bank for International Settlements (BIS), trade weighted terms are used in the name of Renminbi.

The increase in the period is as high as 45.6%.

If the performance of price changes is fully reflected in the real situation of the exchange rate, the real effective exchange rate (REER) of the RMB has increased by 56.2% over the past 10 years.

Although the yuan depreciated against the US dollar last year, REER rose by 9.8% from the end of 2013 to April 2015.

In fact, in terms of REER, the RMB exchange rate has not declined in the past 16 months, and it has appreciated at the fastest rate after the reform.

In addition, China's current account surplus has fallen from 10.1% in 2007 to 2.1% in 2014, and has been around 2% for 4 consecutive years, indicating that the external imbalance has been greatly improved in GDP.

To sum up, the RMB exchange rate mechanism can not be denied that there are still a lot of room for optimization, but the exchange rate is no longer underestimated.