The self-healing of the foreign exchange market, the strong recovery of China's economy, the external factors of the "weak US dollar" policy, and China's continuous reform of the RMB exchange rate formation mechanism led to a strong increase in the RMB exchange rate in the second half of 2017. This will help to reverse the market expectation of the continuous depreciation of the RMB, help to alleviate the internal and external pressure of capital outflows, and help to stabilize the market expectation of China's economic development. However, we should also realize that the unidirectional continuous appreciation of the RMB will have a negative impact on the real economy that cannot be underestimated. Therefore, this continuous appreciation of the RMB exchange rate cannot be allowed.Regarding the reform goal in the next stage of the RMB exchange rate formation mechanism, in the short term, the trend of continuous appreciation of the RMB and market expectations should be reversed in time; in the long term, it is necessary to fully liberalize capital controls and achieve capital account convertibility. This article believes that the basic policy orientation and thinking of China's exchange rate formation mechanism are to serve the development of China’s real economy, give play to the decisive role of the foreign exchange market on exchange rate prices, and implement a macro-prudential monetary policy.
