Looking at the bank's research report, the core focus is on the People's Bank of China's policy stance regarding the RMB exchange rate.

On October 8, the People's Bank of China released its policy stance on the RMB exchange rate, systematically explaining the institutional framework, stabilizing market expectations, and responding to domestic and international concerns about the RMB exchange rate.

The view is that in this round of RMB appreciation, the main driver remains external factors and the weak U.S. dollar index, rather than simply the trade surplus. This policy stance emphasizes that there is no simple linear relationship between the exchange rate and the current account, and that the exchange rate is also affected by the financial account and multiple other factors. From the perspective of the balance of payments, China's current account still maintains a high surplus, but the financial account deficit has widened, so the RMB does not have a basis for long-term large-scale appreciation.

On October 8, the central bank released its policy stance on the RMB exchange rate to stabilize expectations

The recent global macro environment has been complex, with diverging monetary policies among major economies and increased U.S. dollar volatility. International discussion of the RMB exchange rate has continued, with some views simply attributing trade imbalances to the RMB exchange rate, and even misunderstandings of the exchange rate regime and external public opinion pressure. Against this backdrop, the People's Bank of China released a policy stance document on the RMB exchange rate on October 8, 2026, systematically explaining the institutional framework, clarifying external misunderstandings, stabilizing market expectations, and responding to domestic and international concerns about the RMB exchange rate.

Institutional arrangements for the RMB exchange rate

This policy stance once again made clear that China has long adhered to a managed floating exchange rate regime based on market supply and demand and adjusted with reference to a basket of currencies. The core orientation is to let the market play a decisive role in exchange rate formation. At the same time, the policy clearly sets the bottom line for regulation. In scenarios where the exchange rate experiences short-term disorderly overshooting and triggers pro-cyclical herd behavior in the market, macroprudential tools and expectation guidance will be used to stabilize market expectations and prevent short-term destructive overshooting of the exchange rate.

This round of RMB appreciation has mainly been driven by external factors and the weak U.S. dollar index, rather than simply the trade surplus

If we look only at changes in the exchange rate level since 2026, the U.S. dollar index has risen by about 3.7%, while the euro, pound, and yen have depreciated to varying degrees against the dollar. The RMB, by contrast, has continued to appreciate against the dollar. But if we look from the starting point of this round of RMB appreciation in early 2025, from 2025 to now, the U.S. dollar index has fallen by about 6.5% cumulatively, the euro and pound have both appreciated to varying degrees against the dollar, and the RMB has appreciated by about 8.9% cumulatively against the dollar. In 2025, affected by tariff policy disruptions, the RMB's appreciation against the dollar was smaller than that of the euro and pound. The continued appreciation of the RMB in 2026 is more of a catch-up to 2025, rather than being driven simply by the trade surplus. Therefore, the factor driving this round of RMB appreciation remains external, namely the weak U.S. dollar index.

There is no simple linear relationship between the exchange rate and the current account, and the exchange rate is also affected by the financial account and multiple other factors

This policy stance emphasizes that there is no simple linear relationship between the exchange rate and the current account. The exchange rate is a price relationship between currencies and is affected by multiple factors, including economic growth, monetary policy, financial markets, geopolitics, and sudden risk events. In analyzing exchange rate changes, one must look not only at trade in goods, but also at trade in services; not only at the current account, but also at the financial account; and not only at economic fundamentals, but also at expectations and other factors. Therefore, while paying attention to the current account surplus, we also need to monitor inflows and outflows in the financial account.

From the perspective of the balance of payments, China's current account still maintains a high surplus, but the financial account deficit has widened, so the RMB does not have a basis for long-term large-scale appreciation

In 2021-2022, the RMB faced appreciation pressure. At that time, due to the strong performance of goods trade exports and the narrowing of the services trade deficit, the current account surplus continued to widen. At the same time, because foreign capital continued to flow into domestic capital markets, the financial account had only a small deficit, and even showed a twin surplus pattern in Q2-Q3 2021, meaning both the current account and the non-reserve financial account were in surplus, giving the RMB a certain basis for appreciation. Reviewing the previous RMB appreciation period from Q3 2020 to Q1 2022, the average quarterly current account surplus in the balance of payments was US$82.4 billion, the average quarterly deficit in the non-reserve financial account was US$14 billion, and the average quarterly combined surplus of the two accounts was US$68.4 billion. By comparison, in the current RMB appreciation cycle from Q3 2025 to Q2 2026, the average quarterly current account surplus in the balance of payments was US$206.1 billion, the average quarterly deficit in the non-reserve financial account was US$178.6 billion, and the average quarterly combined surplus of the two accounts was US$27.5 billion, far below the surplus position in the previous RMB appreciation cycle. Therefore, although the absolute level of China's current account surplus has widened, as the scale of outbound direct investment and financial investment continues to increase, China's financial account outflows are also expanding in tandem. In summary, under this balance of payments pattern, the RMB does not have a basis for long-term large-scale appreciation.

Risk factors: U.S. economic fundamentals and inflation changes exceeding expectations, a deeper-than-expected recession in overseas non-U.S. economies, and geopolitical risks exceeding expectations or disrupting global foreign exchange markets.