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Who Controls The Rise And Fall Of The Renminbi?

2011/3/17 13:52:00 78

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In 2011, there will be three obvious changes in China's monetary policy rules and will have a lasting impact on the market: one is to implement the differential deposit reserve ratio according to the "G D P+C PI", and to dynamically regulate the money and credit. The total amount of social financing will become a monitoring target, and it is unlikely to become the policy target. Second, interest rate tools will be adjusted according to the "negative interest rate level", and the degree of freedom and space that the central bank can grasp may be expanded. Thirdly, the effective exchange rate of RMB will be adjusted with reference to a basket of currencies, and no more emphasis should be placed on the bilateral exchange rate for a single currency.

Among them, the third change, that is, the effective exchange rate regulation of the renminbi, from the main "pegging" to the "reference" basket of currencies, will have a direct and far-reaching impact on the RMB exchange rate.

Taking into account factors such as the management of imported inflation and changes in the exchange rate of major currencies, the appreciation of the renminbi will probably exceed 5% this year, more than last year.

And the choice of appreciation point is also worth careful deliberation.

In June 19, 2010, the central bank decided to further promote the renminbi.

exchange rate

The reform of the formation mechanism will enhance the elasticity of RMB exchange rate.

Its important economic background is the strong recovery of China's economy under the impact of the crisis in 2010, the resumption of export growth, the strengthening of RMB exchange rate flexibility by the central bank, and the conditions for the exchange rate to normalize and withdraw from the phased dollar pegging policy.

At the same time, taking into account the weakening trend of the US dollar and the increasingly diversified pattern of China's foreign trade and economic cooperation, we have gradually reduced the over reliance on the US dollar, and creating conditions gradually turning to reference to a basket of currencies has become a realistic consideration and choice.

From the perspective of the characteristics of the exchange rate system, pegging and reference are two different exchange rate rules, which are linked to fixed exchange rate, while reference is related to flexible exchange rate, and 100% refers to pegging.

Usually, the exchange rate of a country can be defined as gold, single or basket currency, basket of commodities, and inflation rate as the "reference frame" of exchange rate rules. Different exchange rate formation rules define the policy objectives and the choice of policy instruments.

From this perspective, the pformation of the RMB from the main concern of the US dollar to the reference to a basket of currencies is the pformation between different exchange rate rules. The concept of equilibrium exchange rate has been weakened, and the concept of exchange rate rules has been strengthened. As a rule change, this is a possible conversion.

This conversion made this year a time window for the renminbi to appreciate at a faster rate.

From the point of view of the time, considering that exports will continue to show a recovery growth trend in the first quarter of 2011, and the investment impulse generated by the change of local governments has increased the difficulty of restraining aggregate demand and controlling inflation. The obvious rise of international crude oil and grain prices has strengthened the imported inflation risk.

In such a macro environment, it is more reasonable to choose the appreciation of the effective exchange rate of RMB.

From the point of view of operational flexibility, we should consider the short-term trend of US dollar against other major currencies, especially the euro. If the dollar appreciates significantly against the euro at a certain time, the active appreciation of the effective exchange rate of RMB will not only stabilize the exchange rate expectations, but also avoid the greater pressure of passive appreciation in the future.

From the point of view of the magnitude, it is based on the current suppression of aggregate demand and management.

inflation

The greater pressure, then the appreciation rate should be higher than 2010, and from the whole year, the first half of the appreciation pressure is greater than the second half.

Therefore, it is impossible to exclude the possibility of a larger appreciation in the first half of the year and the possibility of a callback in the second half of the year, so as to keep the appreciation level of the whole year at an appropriate level as a whole.

From the specific appreciation rate, referring to the historical average value, it is estimated that the magnitude of 5% may be more appropriate; from the way of appreciation, that is, the simultaneous appreciation of monetary weight can be promoted or demoted.

The advantage of the former is that the fluctuation of RMB against a single currency can be maintained at a low level. However, in the latter mode, in order to avoid excessive fluctuation of the RMB against a single currency, it can be adjusted through appropriate intervention in the foreign exchange market, but its advantage is that it can effectively reduce the impact of hot money inflow from the expectation of unilateral appreciation of the single currency.

Of course, the appreciation of the RMB effective exchange rate is not without concern.

Among them, the profit and the affordability of the export department have considerable weight of decision making influence.

There is a view that

RMB appreciation

It has been emphasized as a balance of interests. The appreciation of the renminbi will affect exports and employment, and even affect social stability.

However, the impact of exchange rate appreciation on the export sector is far less than expected.

Most empirical studies show that the pmission effect of RMB appreciation is about 50%, that is, if RMB appreciation is 10%, exporters and foreign consumers will bear 5% of their appreciation costs. Similar studies also confirm that the trade elasticity coefficient of export prices is about -0.6.

With these two coefficients, if RMB's reference to the real effective exchange rate of a basket of currencies is 5% to 6%, then assuming that enterprises do not take the initiative to carry out any measures to deal with and improve efficiency, at best, the export profits will eventually drop by 1.5% to 1.8%, and the impact will be very limited.

In addition, from the perspective of China's export structure, processing trade accounts for about 50%.

The appreciation of the renminbi in raising export prices also reduces the cost of imported raw materials. This part of the trade is less sensitive to the appreciation of the exchange rate.

More importantly, efforts to upgrade the structure of the export sector, reduce costs and increase production efficiency have become the best way to offset the negative impact of RMB appreciation.

Historical data show that the appreciation of the renminbi has not hindered China's exports.

From July 2005 to July 2008, the RMB exchange rate appreciation period was also the fastest growing period of China's export growth, with an average annual growth rate of over 23%.