Monetary Policy Tools - The central bank has four main policy tools to manage exchange rate fluctuations: expectation management tools, macro-prudential tools, foreign exchange liquidity control tools, and exchange rate price control tools[4] - Currently, the central bank is in the liquidity management phase, with sufficient policy tools available, including the ability to adjust cross-border financing parameters and increase foreign exchange reserve requirements[7] Exchange Rate Stability - The central bank emphasizes maintaining the RMB exchange rate at a reasonable and balanced level to prevent excessive fluctuations and unilateral expectations, which is crucial for financial stability and macroeconomic control[2] - The recent appreciation of the RMB is primarily driven by concentrated corporate settlement, with the exchange rate expected to stabilize between 6.8 and 7.1 against the USD by 2026[8] Risk Management - Unilateral appreciation or depreciation of the RMB can exacerbate market expectations and increase volatility, impacting capital flows and financial market stability[3] - The central bank aims to prevent the formation of unilateral expectations that could lead to self-fulfilling prophecies, thereby maintaining the resilience and flexibility of the exchange rate[2] Future Outlook - The RMB's recent appreciation is linked to corporate settlement activities, and future exchange rate movements will depend on fundamental factors and the USD index[8] - The accumulated settlement funds since 2022 are approximately $1.13 trillion, with a weighted average holding cost around 7.1, indicating potential upward pressure on the RMB[8]