Analysis on the Reasons for Differences Between Settlement Rate and Real-time Rate

Why Does the Conversion Rate Differ from the Real-time Exchange Rate?

Recently, news in the domestic foreign exchange market has been drawing much attention, one of which is the difference between the conversion rate and the real-time exchange rate. This topic not only affects the economic activities of a wide range of enterprises and individuals but also concerns the market and policymakers. So, what exactly causes the difference between the conversion rate and the real-time exchange rate?

First, we need to understand what the conversion rate and the real-time exchange rate are. The conversion rate refers to the exchange rate used by banks when conducting foreign exchange conversion at specific times, while the real-time exchange rate is the immediate exchange rate in the market. The difference between the two is usually caused by factors such as market supply and demand, policy intervention, and adjustments in monetary policy.

1. Market Supply and Demand

The supply and demand relationship in the foreign exchange market is an important factor influencing exchange rates. When demand exceeds supply, the exchange rate rises; conversely, it falls. In the context of the continuous acceleration of the internationalization of the renminbi, the increasing investment and trade demands both domestically and internationally put certain pressure on the renminbi exchange rate. To stabilize the market, the central bank may intervene in the market by regulating base money, interest rates, and other means, thus affecting the difference between the conversion rate and the real-time exchange rate.

2. Policy Intervention

Policy intervention is another significant factor affecting exchange rates. As the maker and executor of monetary policy, the central bank will take corresponding measures to stabilize the exchange rate based on macroeconomic conditions and international situations. For example, the central bank can adjust the reserve requirement ratio and conduct open market operations to regulate the money supply, thereby influencing the liquidity in the market and the level of the exchange rate. These policy implementations also lead to differences between the conversion rate and the real-time exchange rate.

3. Adjustment of Monetary Policy

Adjustments in monetary policy are also one of the reasons for the difference between the conversion rate and the real-time exchange rate. The central bank will adjust monetary policy according to changes in the economic situation to maintain stable economic growth. For instance, when the economy overheats, the central bank might adopt contractionary monetary policies such as raising interest rates and reducing the money supply, leading to a decline in the renminbi exchange rate. Conversely, when the economy weakens, the central bank might implement expansionary monetary policies like lowering interest rates and increasing the money supply, causing the renminbi exchange rate to rise. These policy adjustments also impact the conversion rate and the real-time exchange rate.

4. Other Factors

Besides the aforementioned market supply and demand, policy intervention, and monetary policy adjustments, there are other factors that contribute to the difference between the conversion rate and the real-time exchange rate. Changes in the international situation, trade frictions, geopolitical risks, and other factors can all influence exchange rates. Bank transaction costs, transaction efficiency, and other factors also have a certain impact on the difference between the conversion rate and the real-time exchange rate.

In conclusion, the difference between the conversion rate and the real-time exchange rate is the result of multiple factors working together. To reduce this difference, the central bank needs to strengthen market monitoring and adjust monetary policies and intervention measures in a timely manner to maintain the stability of the renminbi exchange rate. At the same time, businesses and individuals should also pay attention to market dynamics, reasonably arrange funds and foreign exchange transactions to cope with potential risks and challenges.

This is the analysis and interpretation of the difference between the conversion rate and the real-time exchange rate. I hope this article can help everyone better understand and respond to changes in the foreign exchange market, thereby better carrying out economic activities and investment decisions.