Aug. 11 is the anniversary of the most recent round of the RMB exchange rate regime reform. The central parity rate of the yuan against the U.S. dollar has dropped by 8.8 percent.

The past year has witnessed three rounds of fluctuation in the yuan.

Three days after the exchange rate reform on Aug. 11, 2015, the central parity rate of the yuan against the dollar slumped down to 6.4. Between December 2015 and January 2016, the offshore exchange rate of the yuan plummeted, dragging the onshore exchange rate from 6.49 down to 6.52. The offshore and onshore exchange rates fell 1.47 percent and 1.74 percent respectively in the first week of 2016.

The third depreciation was closely tied to international markets. Expectations for the interest increase of the Federal Reserve impacted the rate of the yuan against the dollar in May, and Brexit only worsened the situation. Mid-July witnessed the exchange rate drop below 6.7. Recently, the exchange rate of the yuan has begun to bounce back.

The cost of reform

Costs always accompany reform. The reduction of the foreign reserve is frequently mentioned as one such cost. The foreign reserve lost an average of $40 billion monthly last year, declining from $3.65 trillion in July 2015 to $3.20 trillion in July of this year.

Another change is the offshore RMB exchange rate. With the exchange rate reform, the gap between offshore and onshore exchange rates has narrowed. The consideration that domestic banks get engaged in the offshore RMB business will further weaken the influence of the offshore market.

As the largest offshore RMB market, Hong Kong’s RMB pool has returned to its volume of three years ago. The circulation of the market has shrunk by one-quarter, or 26 billion yuan. According to statistics from the Hong Kong Monetary Authority, by the end of June, the RMB balance in Hong Kong had decreased to 71.15 billion yuan, down 2.8 percent to the same level from August 2013.

On Aug. 11 2015, the People's Bank of China changed the way it calculated the yuan central parity rate, to close the gap between the rate and the actual trading rate on money markets. The central parity rate now takes into account the previous day's inter-bank market closing rate, supply and demand and the price movements of other major currencies.