Challenges from New RMB Exchange Rate Regime to Risk Management by China's Commercial Banks

International commercial banks have developed a series of matured and sound strategies against foreign exchange risk in the long practice of floating exchange rate.A sharp contrast is that domestic commercial banks spoiled by a long-standing stable RMB exchange rate lack necessary experience and ability to manage foreign exchange risk.However,since the Central Bank decided to reform RMB exchange rate formation mechanism to expand foreign exchange market on 21 July 2005,domestic commercial banks began to be exposed to greater risks in credit,liquidity,accounting and transaction of foreign exchange increase,facing new challenges in their operational procedures and risk management.Thus commercial banks should not only take active measures to reduce the above-mentioned risks caused by appreciation of RMB,but also should use the experience of international commercial banks to set up a sound risk management system to deal with a more elastic RMB exchange rate regime.