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What does the central parity rate of RMB mean and what is the difference between it and the exchange rate?

2022-01-17

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Friends who invest in foreign exchange may notice the concept of the central parity rate of RMB. This concept is actually a financial term, but it also affects foreign exchange transactions. This article focuses on explaining what the central parity rate of RMB means, and the difference between the central parity rate of RMB and foreign exchange rates.

What does the central parity rate of RMB mean?

The central parity rate of RMB is a financial term. The China Foreign Exchange Trade System asks all market makers in the interbank foreign exchange market for quotations before the opening of the interbank foreign exchange market every day, and uses the quotations of all market makers as a calculation sample for the central parity rate of the RMB against the US dollar. , after removing the highest and lowest quotations, the weighted average quotations of the remaining market makers are obtained.

The central parity rate of the RMB exchange rate is the most important reference indicator for the spot interbank foreign exchange market and the exchange rate quoted by banks. The central parity rate of the renminbi is announced by the People's Bank of China at 9:15 a.m. every day, and is determined based on the "closing exchange rate + changes in a basket of currency exchange rates" on the previous trading day.

For example, in the early morning of the previous day, the central parity rate of the RMB against the US dollar was 6.5000. At the close, the exchange rate became 6.4950, which means that the market performance of the RMB appreciated by 50 basis points.

The role of this middle price is to ensure that the daily exchange rate of RMB can only fluctuate within a range of 2% above and below this price.

Generally speaking, how many points the central parity rate of the RMB has been raised substantially refers to the change in the central parity rate of the USD/RMB exchange rate. The central parity rate of the RMB is an idiom.

What is the difference between the central parity rate of RMB and the exchange rate?

The central parity rate of RMB refers to the benchmark exchange rate of RMB on the day announced by the central bank at 9:15 a.m. every day. The central bank determines the exchange rate fluctuation range of RMB traded in the foreign exchange trading center by publishing the central parity rate of RMB. The current intraday fluctuation range of the market exchange rate is It fluctuates by 2% on the basis of the central bank's central parity rate.

In principle, the central parity of the central bank's RMB is obtained by taking the average of quotations from several market makers, but in real time the central parity is the central bank's regulated exchange rate. Quote has nothing to do with it.

The China Foreign Exchange Trade System announces the central parity rate of the RMB exchange rate once a day, one rate per day. The daily transaction price of RMB against the U.S. dollar in the interbank foreign exchange market can fluctuate within a range of 2% above and below the central parity rate of the RMB against the U.S. dollar on that day. This is the market transaction price and fluctuates at any time, which is also reflected in the bank’s At the exchange rate for settlement and sale, the price is more than one day.

Now everyone should know what the central parity of RMB means. It should be noted that the central parity of RMB announced by the central bank is not a market tradable price. In many cases, the central parity of the central bank and the spot market exchange rate of RMB will have a relatively large deviation. Therefore, investors should pay more attention to the exchange rate changes in the foreign exchange market and make timely transaction adjustments.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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What does the central parity rate of RMB mean and what is the difference between it and the exchange rate?

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