RMB up! Hi! How to deal with the advantages and disadvantages of rapid appreciation?

category:Finance
 RMB up! Hi! How to deal with the advantages and disadvantages of rapid appreciation?


Tan Yaling, President and chief economist of the China Foreign Exchange Investment Research Institute, told China news. Com that this round of RMB appreciation started in June and has not ended now. The cycle is relatively long. From this point of view, the whole international economic and trade relations, including geopolitics, are highly targeted and designed between foreign exchange plate and currency competition.

According to the data, in the third quarter, the onshore RMB rose by 3.89% against the US dollar, the largest single quarter increase since the first quarter of 2008. Since October, the RMB exchange rate has continued to soar.

In the long run, the central exchange rate of RMB against the US dollar on May 29 was 7.1316, while on October 22 it was 6.6556. In a short period of nearly five months, the central exchange rate of RMB against the US dollar has appreciated by 4760 basis points.

RMB and US dollar chart. Photo by Li Jinlei, China News Network reporter

Why does RMB appreciate sharply?

CITIC Securities Analysts clearly believe that fundamental factors lead to RMB appreciation. The recent appreciation of the RMB exchange rate is, to a large extent, a good reflection of the basic orientation of Chinas economy.

Tan Yaling said that as Chinas economy took the lead in recovery, the situation of economic stability and resumption of production was relatively good. In addition, Chinas financial market accelerated its opening-up, so international capital preferred the Chinese market in terms of speculation, hedging and arbitrage. This superimposed effect promoted the influx of funds into the Chinese market.

The bank staff are counting the money. Photo by Zhang Yun

The RMB exchange rate is expected to remain strong in the short term

The research report released by CICC said that in the short term, the RMB may maintain a strong trend against the US dollar, which does not rule out that the RMB exchange rate against the US dollar will continue to appreciate slightly to about 6.5 in the short term.

However, CICC reminds us that there are some factors restricting the appreciation of RMB. If the U.S. fiscal stimulus is implemented, coupled with the improvement of the overseas epidemic situation and the global economic recovery next year, the growth gap between China and overseas will narrow, and the interest rate gap between China and the United States may also drop from the current high level. These factors may inhibit the RMB exchange rate. In this case, it is not ruled out that the RMB will depreciate to about 7.0 against the US dollar.

Currency chart.

RMB appreciation has advantages and disadvantages

It is clearly believed that the systematic importance of exchange rate has been enhanced, and internal and external equilibrium has become an important goal of monetary policy, and rapid appreciation cannot be pursued. Exchange rate is not only related to import and export, but also closely related to international capital flow. From the lessons learned from the exchange rate appreciation after the 1985 Plaza Accord, we can see that if the indulgent exchange rate appreciates or depreciates, the pressure on domestic asset prices will also increase, which will easily push up asset bubbles in China.

Zhou Maohua, a financial market analyst of China Everbright Bank, believes that the unilateral sharp appreciation of RMB will inevitably drag down domestic and foreign trade and economic recovery. Once the market deviates from the fundamentals and irrational sentiment, it is not ruled out that the central bank will use tools including counter cyclical factors to guide the market to return to rationality.

Earlier, Yi Gang, governor of the peoples Bank of China, wrote an article on October 10 that throughout the world, successful economies must maintain a stable currency value, which includes not only the stability of domestic price level, but also the basic stability of exchange rate.

The peoples Bank of China decided to reduce the foreign exchange risk reserve ratio of forward foreign exchange sales business from 20% to 0 from October 12, and said that it would continue to maintain the flexibility of the RMB exchange rate, stabilize market expectations, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.

On October 14, sun Guofeng, director of the Monetary Policy Department of the peoples Bank of China, said at a press conference that the exchange rate of the RMB against the US dollar has risen slightly recently, which is generally moderate. On October 12, the closing price of RMB against US dollar rose by 3.3% compared with the end of last year and 2.5% compared with the average value of last year. The appreciation rate was lower than that of other major international currencies such as euro. In sun Guofengs view, a small appreciation of the RMB exchange rate is a natural reflection of Chinas economic orientation. It is normal for the RMB exchange rate to appreciate under the impetus of supply and demand in the market, which is the due meaning that market supply and demand play a decisive role in the formation of exchange rate under the managed floating exchange rate system. Sun Guofeng said that in terms of the impact of the exchange rate, exchange rate fluctuations are beneficial to one side of the economic entity and have disadvantages to the other side. Therefore, the exchange rate should still be determined by market supply and demand, so as to play the role of automatic stabilizer of macro-economy and balance of payments. Of course, we should also prevent excessive leverage and excessive positive feedback. (end) source: Chen Hequn, editor in charge of China News Network_ NB12679

On October 14, sun Guofeng, director of the Monetary Policy Department of the peoples Bank of China, said at a press conference that the exchange rate of the RMB against the US dollar has risen slightly recently, which is generally moderate. On October 12, the closing price of RMB against US dollar rose by 3.3% compared with the end of last year and 2.5% compared with the average value of last year. The appreciation rate was lower than that of other major international currencies such as euro.

In sun Guofengs view, a small appreciation of the RMB exchange rate is a natural reflection of Chinas economic orientation. It is normal for the RMB exchange rate to appreciate under the impetus of supply and demand in the market, which is the due meaning that market supply and demand play a decisive role in the formation of exchange rate under the managed floating exchange rate system.

Sun Guofeng said that in terms of the impact of the exchange rate, exchange rate fluctuations are beneficial to one side of the economic entity and have disadvantages to the other side. Therefore, the exchange rate should still be determined by market supply and demand, so as to play the role of automatic stabilizer of macro-economy and balance of payments. Of course, we should also prevent excessive leverage and excessive positive feedback. (end)