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?


The trend chart of the middle price of RMB against US dollar exchange rate.

Both onshore and offshore RMB exchange rates against the US dollar reached new highs in more than two years. On October 22, the onshore RMB rose to 6.64 against the US dollar, while the offshore RMB rose to 6.63.

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.

From 7.1316 to 6.6556, if the exchange rate was 100 thousand US dollars, 71316 thousand yuan was needed at that time. Today, it only needs 66556 thousand yuan, which can save 47600 yuan.

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

Why does RMB appreciate sharply?

CITIC Securities Analysts clearly believe that the underlying factors lead to the appreciation of the yuan. The recent appreciation of RMB exchange rate is a good reflection of Chinas economic orientation to a large extent.

During the global epidemic, Chinas economy took the lead in recovering, playing the role of the global supply center, increasing the demand for RMB in the foreign exchange market. Clearly, in contrast, in the United States, the impact of the epidemic on it may make the Federal Reserve unable to return to the track of currency normalization for a long time. The long-term easing expectation keeps the interest rate of US Treasury bonds at a low level, while the interest rate spread of 10-year Treasury bonds between China and the United States is maintained at a high level of about 250 basis points. Therefore, fundamental factors, including trade surplus and Sino US interest rate spread, are the direct reasons for the recent boost of RMB exchange rate.

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.

At the same time, Tan Yaling reminded that the RMB exchange rate quotation mechanism determines the overseas parameters are very important. We should not rule out the deliberate use of the problem overseas. With the help of Chinas relatively good momentum and the effect of opening up, we should pay close attention to the suspicion of deliberately pushing up the RMB.

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

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

For the follow-up trend of RMB, it is clear that under the impact of the epidemic, the Fed opened a sluice to release water, and the US inflation expectation suppressed the dollar index, and the medium-term RMB exchange rate was positive. On the other hand, the high interest margin and the rising potential difference of stock market in the bond market between China and the United States may drive capital inflow, and the exchange rate of RMB is also a medium and long-term boost. It is expected that the exchange rate of RMB against the US dollar may fluctuate between 6.6 and 6.9 in the short term.

Guotai Junan research paper believes that Chinas economic fundamentals are still strong, while the US economy is uncertain about economic recovery due to the lack of support from the new fiscal stimulus package. Therefore, from the perspective of economic fundamentals, the market will still have support for RMB in the next 3-6 months. The medium and long-term RMB exchange rate is expected to maintain a stable and rising trend. It is expected that the RMB exchange rate will fluctuate in the range of 6.5-6.9 in the near future, and it will rise gradually in the future. It is not excluded that the RMB exchange rate will rise to around 6.0 in the next year.

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

Wen bin, chief researcher of China Minsheng Bank, told China news. Com that the appreciation of RMB is conducive to imports, and import enterprises will reduce procurement costs and increase profits. At the same time, for ordinary people, traveling abroad, studying abroad and shopping will be more cost-effective. However, it has a great negative impact on export enterprises.

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.

Photo: Peoples Bank of China. China News Agency reporter Zhang Xinglong

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.

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.

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)