In an era marked by profound shifts in the global economy and a rapidly changing geopolitical landscape, the fluctuations of the Chinese yuan (RMB) have garnered significant attention. Since the beginning of 2024, the RMB exchange rate has experienced a series of ups and downs against a backdrop of complex international and domestic dynamics, showcasing remarkable resilience. Looking ahead, however, the RMB may be confronted with multiple external shocks that could challenge its stability. Nevertheless, numerous favorable internal factors within China are poised to provide a solid foundation for the RMB, enabling it to remain stable and effectively fend off external risks amidst turbulent conditions.

Reflecting upon the year 2024, the trajectory of the RMB resembles a winding river, which can be generally divided into three distinct stages. From January to July, robust U.S. service sector and employment data kept expectations for Federal Reserve rate cuts in check, leading the U.S. dollar index to rise amid fluctuations. In contrast, the Chinese economy displayed signs of recovery, with a reasonable and orderly flow of capital across borders. Throughout this period, the RMB traded within the range of 7.10 to 7.27 against the U.S. dollar, appreciating by 0.5% against the euro and 4.6% against the yen, reflecting a strong performance in the international foreign exchange market. The months of August and September, however, revealed signs of economic deceleration in the U.S., with a rapid rise of the yen driven by unwinding carry trades. The Federal Reserve also executed a 50 basis point rate cut—the first since 2020. Recognizing these external changes, China introduced a comprehensive suite of incremental policies to bolster its economy, resulting in the RMB gaining strength and closing at 7.0156 on September 30, achieving a new high in 16 months. Despite these favorable policies, challenges persisted, yet data such as an 8-month high growth in retail sales, increases in both new and existing home transactions, a significant growth in daily trading volumes on the Shanghai and Shenzhen exchanges, and a "double surplus" in cross-border payments and bank foreign exchange settlements all contributed to the stability of the RMB against external shocks.

Presently, the international trade and economic environment, coupled with the increasingly complicated geopolitical situation, has fostered a rise in trade protectionism. Such trends have disrupted cooperation along global industrial and supply chains, resulting in certain external shocks for the RMB exchange rate. From a broader economic perspective, while inflation in major economies like the U.S. and Europe continues to trend downward, and monetary policies show signs of loosening, the unpredictability of Federal Reserve rate cut expectations and the volatile geopolitical landscape add layers of complexity and uncertainty to the RMB’s exchange framework. Furthermore, the implementation of trade protectionist policies could hinder China's export activities, potentially impacting its balance of payments and resulting in downward pressure on the RMB's value.

Despite these external pressures, a variety of favorable internal conditions continue to support the RMB, effectively acting as a buffer against external risks. In terms of economic fundamentals, prior measures such as interest rate cuts, reserve requirement reductions, and debt reduction strategies have gradually taken effect. Positive economic indicators are accumulating, positioning China to successfully meet its primary socio-economic growth targets for the year. The December meeting introduced terms like "enhancing extraordinary counter-cyclical adjustments" and "expanding domestic demand in all aspects," signaling a more proactive and effective policy stance. The Central Economic Work Conference urged an increase in fiscal deficits and emphasized nine key developmental tasks. Analysts widely consider these policy measures unprecedented in scale, predicting that domestic consumption needs will continue expanding, and the real estate market will unlock further potential, boosting confidence in capital markets and enhancing the economic vigor of the country. A robust economy serves as a solid foundation for the RMB exchange rate, increasing its resilience against external challenges.

Examining international balance of payments, in the first eleven months of 2024, China's total import and export value reached $5.6 trillion, marking a 3.6% year-on-year increase on a high baseline, and a surplus exceeding $880 billion, a record for the same period in history. While external trade protectionist policies may present challenges for exports next year, the competitiveness of Chinese products continues to strengthen. The rapid development of new trade formats and an ever-diversifying array of foreign trade partners are likely to sustain a resilient export landscape. Furthermore, China continues to push towards high-level openness and improve the business environment, which is expected to draw increased foreign investment directed towards RMB assets and foster both securities and direct investment to evolve smoothly. A favorable international balance of payments will help maintain supply and demand equilibrium in the foreign exchange market, providing robust support for the RMB's stability.

Regarding reserve assets, China's foreign exchange reserves have remained consistently above $3 trillion for several years. As of November 2024, the foreign exchange reserve balance stood at $3.2659 trillion, an increase of nearly $30 billion from the previous year-end. Such robust reserves act as a bulwark against various external shocks. During periods of short-term volatility or external pressures on the RMB, these reserves can stabilize market expectations and adjust foreign exchange supply and demand, bolstering confidence in the RMB’s value.

In conclusion, China's economic fundamentals are stable, marked by numerous advantages, strong resilience, and vast potential for growth. The enduring supportive conditions for a long-term upward trajectory remain unchanged, allowing intrinsic favorable factors to solidify support for the RMB exchange rate, effectively countering external risks and challenges. In the face of escalating external uncertainties, the RMB's two-way fluctuations have become a norm. Enterprises should further strengthen their risk-neutral mindset, establishing a scientific exchange rate management system that focuses on "preservation" rather than "appreciation" of the currency. This includes appropriately arranging the structure of currency assets and liabilities, utilizing suitable exchange rate derivatives for hedging, and proactively mitigating market fluctuations that could affect corporate profitability, thereby concentrating on core business areas for sustainable and stable development. Given the traditional year-end settlement season, exporters currently observe that the RMB's exchange rate fluctuates between 7.2 and 7.3—significantly more advantageous compared to levels observed in August to October. Selling foreign exchange to obtain RMB funding for settling accounts, repaying financing, or paying salaries presents a clear benefit. Importers, on the other hand, should avoid speculative trading and arrange their foreign exchange acquisitions according to genuine demand to appropriately mitigate risks associated with exchange rate fluctuations.

Faced with potential external shocks to the RMB exchange rate, vigilance is essential. It is crucial to closely monitor changes in international circumstances while maintaining confidence in the advantages of the Chinese economy. Through the effective implementation of policies and the self-regulating nature of the market, it is imperative to ensure that the RMB exchange rate remains fundamentally stable at a reasonable equilibrium level, thereby creating a conducive monetary environment for the sustainable and healthy development of China's economy.