Analysis of the Influencing Factors of the RMB Exchange Rate

Abstract

During the second quarter of 2023, China's GDP expansion demonstrated a performance that fell short of market forecasts, suggestive of a broader economic deceleration. This phenomenon was exacerbated by the widening disparity in bond yields between the United States and China, culminating in a sustained devaluation of the Renminbi (RMB) exchange rate. The escalating pressures leading to RMB depreciation have consequently impeded the natural progression of RMB internationalization. Considering these circumstances, a comprehensive exploration of the multifaceted determinants influencing the RMB exchange rate assumes paramount significance, as it holds the key to mitigating the protracted challenges of RMB depreciation and its attendant instability. This study strives to synthesize the existing body of literature while meticulously selecting several factors that manifest a substantive degree of pertinence to the (RMB) exchange rate. The application of the robust least squares methodology entails the estimation of regression coefficients, thereby engendering a systematic exploration into the nuanced interplay between the multitude of factors and their discernible impact upon the RMB exchange rate. The discernments gleaned from this empirical inquiry accentuate the paramount role ascribed to China's macroeconomic milieu in orchestrating the oscillations witnessed within the RMB exchange rate realm. Remarkably, this relationship's dynamism unveils its mutable nature across diverse temporal domains. Consequently, this exploration elucidates that recalibrating the composite array of pivotal variables, in consonance with the unique temporal exigencies, emerges not only as a prudent approach but an indispensable necessity to achieve the pinnacle of research precision.