Foreign trade enterprises should take multiple measures to deal with exchange rate fluctuations

In 2020, the CNY has gone out of a wave of "first depreciation and then rise" market.  Entering 2021, the CNY is also "rising". On January 4, the onshore CNY against the US dollar rose by nearly 800 points in a single day.  On January 6, the CNY continued to rise, and the central parity against the U.S. dollar was raised by 156 basis points to 6.4604, setting a new high since June 20, 2018.  On the morning of January 20, the central parity of the CNY against the U.S. dollar was reported at 6.4836 yuan, an increase of 47 basis points from the 6.4883 yuan on the previous trading day (January 19).  It is worth noting that although the CNY has ushered in a "good start" in 2021, the appreciation of the CNY has also put a certain pressure on foreign trade export companies.

"The appreciation of the CNY has put some pressure on our company, and the fluctuation of the exchange rate has diminished the profit margin of our company to some extent."

The exporter leader of a private enterprise in Zhejiang told a reporter from China Economic Times.

Data show that the US dollar accounts for 60% of the world's foreign exchange reserves, 44% of international payments, 90% of financial derivatives, and more than 70% of cross-border trade is settled in the US dollar.With the appreciation of the CNY, this will make foreign trade enterprises receive a lot of dollars, but converted into CNY appeared "shrinkage".

In view of the exchange rate changes, the relevant departments have introduced a number of policy measures to slow down the pace of CNY appreciation.

Everbright bank financial markets analyst Zhou Maohua said in an interview with China economic times reporter, because China has certain industrial manufacturing sector is still in the middle and lower reaches of the global industry value chain, the CNY exchange rate changes for foreign trade is a "double-edged sword", while the appreciation of the CNY to a certain extent, reduce the imports of raw materials costs, such as stimulating domestic spending overseas, but the influence degree depends on the global epidemic situation and the demand situation.

The continuous appreciation of CNY or short-term appreciation too fast will certainly weaken the overall competitive advantage of China's export, especially for those small and medium-sized foreign trade enterprises with low added value, thin profit margin and high dependence on external demand.

Therefore, in the future, foreign trade enterprises and financial institutions need to make collaborative innovations, make full use of foreign exchange derivatives to strengthen exchange rate management, but avoid using derivatives to speculate on foreign exchange.

Tan Yaling, president of China Foreign Exchange Investment Research Institute, said to our reporter that for export enterprises, first, enterprises should strengthen the financial level or exchange rate level of thinking, to understand the market, see through the market, do some market evaluation and forecast in advance.Second, enterprises can according to the change of market conditions, according to their own needs for appropriate settlement of foreign exchange.Third, enterprises can increase some measures, such as appropriate long-term settlement of foreign exchange business."Thinking in the short, medium and long term can help foreign trade enterprises to cope with the appreciation of the CNY.""Tan said.

Some insiders said that, on the one hand, foreign trade enterprises should consider using CNY as the settlement currency, and strive to avoid exchange rate risks.On the other hand, foreign trade enterprises can settle in other currencies to moderately offset the losses caused by the depreciation of the US dollar.

In addition, foreign trade enterprises can also use "foreign exchange lock-in tools" (i.e. forward settlement and sale of foreign exchange) to lock forward exchange rates through forward tools to reduce exchange rate risks.

The Director of the Monetary Policy Department of the People’s Bank of China, Sun Guofeng, said at a press conference held by the State Council Information Office recently that the recent fluctuations in the exchange rate of the CNY against the US dollar are normal, indicating that market supply and demand have played a decisive role in the formation of the exchange rate, and the flexibility of the CNY exchange rate has increased. Ups and downs, and two-way floating have become the norm, playing the role of an automatic macroeconomic stabilizer, and creating conditions for the central bank to independently implement normal monetary policies in accordance with our country's economic situation.