cuts. the equilibrium exchange rate determination theory treats exchange rate as a function of current account balance or trade balance. if the function has a linear relationship with current account balance, it could be adjusted accordingly. however, the relationship is much likely to be non - linear, which means exchange rate floating needs to be progressed in a gradual and proper manner and should be managed in line with the state of the economy and bop position. exchange rate adjustment poses pressures on the corporate sector ’ s structural adjustment. a large or rapidly growing trade surplus means companies are generally adaptive to such pressures, while a shrinking surplus suggests companies need to enhance their ability to deal with exchange rate adjustment. the adjustment process needs to be properly paced to take full advantage of favorable factors and contain the impact of disadvantages. it should also take into account global economic development and international cooperation to help secure the current period of strategic opportunities. exchange rate adjustment helps improve the relative position of domestic and external prices, and optimize resources allocation between domestic - oriented sectors and the external sector. it supports domestic consumption growth, industrial restructuring and innovations. this progress will in turn facilitate market - based adjustment of current account position and ultimately contribute to balanced and sustainable growth. exchange rate adjustment also affects capital account. therefore, it is necessary to closely monitor capital flows, stand ready to conduct sterilization operations, and impose limits on external debts. it is important to put restrictions on converting the external debts of foreign currencies into rmb, and step up efforts to address irregularities in foreign exchange flows, as experiences from thailand and other countries show, borrowing external debt and converting it into domestic currencies by the private sector, corporate sector or other sectors is a major channel for capital inflows. temporary control on capital inflow and outflow may also be introduced if circumstances warrant, as what has been done recently by a number of emerging market economies. iii. measure the exchange rate with reference to a basket of currencies a floating exchange rate has impact on total imports and exports of an economy. therefore, the floating cannot be aimed to adjust bilateral trade balance and it is not advisable to just look at the rmb / usd exchange rate. theoretically, the best indicator to measure the international relative price of tradables is real effective exchange rate, i. e. the exchange rate measured by a basket of currencies of major trading partners. real effective exchange rate reflects the movement of dollar exchange rate to other major currencies and has

pacific region. the cpc shanghai committee, shanghai municipal government, financial regulatory institutions in shanghai, and policy and commercial financial institutions have always supported the pbc in carrying out its work, which guaranteed the effective operation of the institutions of the pbc in shanghai. the newly founded pbc shanghai head office will also need attention and support from all of you. by making continued efforts to improve financial services, the pbc will seek to make new contributions to economic development and financial stability. thank you!