The internationalization chess game behind the RMB appreciation: How the central bank is driving the exchange rate to new highs

After the Federal Reserve’s rate cut cycle began, the performance of the RMB exchange rate has attracted market attention. As of the end of November, the onshore USD/RMB exchange rate fell to 7.0824, and the offshore RMB dropped to 7.0779, both hitting new lows in over a year. During the same period, the CFETS RMB Exchange Rate Index rose above 98.22, marking the strongest performance since April of this year.

The driving forces behind this appreciation trend come from two levels. First, the gradual interest rate reductions by the Federal Reserve have laid the foundation for RMB appreciation against the US dollar. Second, and more critically, is the proactive guidance from the People’s Bank of China—continuously raising the daily midpoint rate and state-owned banks frequently entering the market to buy US dollars to stabilize exchange rate fluctuations, creating market expectations for the RMB to strengthen steadily.

Strategic Considerations of International Reserve Currencies

From a macro strategic perspective, the RMB’s appreciation reflects China’s deep policy intentions. Economists believe that the central bank’s approach aims to enhance the international credibility of the RMB by demonstrating its stability and strength. This logic is not new—during the 2008 Asian financial crisis, the RMB refused to participate in global competitive devaluation, laying the foundation for its role as a regional settlement currency.

In contrast, during the 2018 trade frictions, the RMB was pressured to depreciate by about 5%, but from 2025 to the present, the RMB has appreciated by nearly 3% against the trend. This shift clearly signals that, amid increasing global market turbulence, the RMB is being positioned as a safe-haven and stabilizing asset.

Trading Volume and Internationalization Feedback Loop

The latest data from the Bank for International Settlements provide quantitative evidence. Since the previous survey in 2022, the daily trading volume of USD/RMB has increased by nearly 60%, reaching a scale of $781 billion, accounting for over 8% of the total global foreign exchange daily trading volume. The surge in trading volume is both a result of RMB appreciation and a reflection of its rising international status.

This expansion of trading depth creates a market foundation for further RMB internationalization. When more global investors and central banks are willing to hold and trade RMB, the establishment of its status as an international reserve currency gains genuine market support.

Institutional Outlook on the RMB Exchange Rate

Goldman Sachs’ research team, based on current policy signals and economic fundamentals, provides a clear exchange rate forecast: by the end of the year, the RMB against the US dollar is expected to appreciate to the 7 yuan level, and by the end of 2026, this rate could further strengthen to 6.85 yuan. This implies that the RMB still has about a 3.4% appreciation potential from now.

Analysts point out that the central bank’s changing attitude towards RMB appreciation reflects that RMB internationalization has officially become a priority in China’s financial policy. In the coming years, this process is expected to accelerate significantly, involving improvements in the RMB clearing system, increased RMB share in cross-border trade settlements, and a larger proportion of RMB assets in global investment portfolios.

From the perspective of market participants, RMB appreciation is not merely a change in exchange rate figures but a reflection of the broader trend of reshaping the status of a major country’s currency.