Accelerated Appreciation Of Renminbi: Dance On Wire

In July 21, 2005, the central bank announced the implementation of a managed floating exchange rate system based on market supply and demand and reference to a basket of currencies.

In April 7, 2008, the yuan has reached 7.002 yuan against the US dollar, only a short distance from the "6 era", and the pace of appreciation has not ceased.

Against this background, what will be the impact of China's macro economy and capital market?

What kind of investment strategy should investors take?

The appreciation of the renminbi will make the country's economic regulation and control tools increasingly diversified, and at the same time, more market risk aversion tools can be derived.

In the process of promoting industrial structure adjustment and optimization and upgrading, changing the mode of economic growth and improving the quality of economic growth in China, the appreciation of the local currency will nurture opportunities for investment, expansion, development and Optimization in many fields. In the process, China's economy and even China's stock market have reason to be optimistic for a long time.

Since May 21, 2007, the floating rate of RMB to us dollar exchange rate in China's interbank spot foreign exchange market has expanded from 0.3% to 0.5%.

In December 3, 2007, the Ministry of economic information forecast of the state information center recommended in the 2008 macroeconomic trend forecast and macroeconomic control measures, "in 2008, the RMB exchange rate elasticity should be further enhanced, and the fluctuation range of RMB against the US dollar will be moderately expanded, and the floating rate of RMB to US dollar exchange rate in interbank spot foreign exchange market will be expanded from 0.5% to 1%".

In addition to enhancing the elasticity of RMB exchange rate, industry experts also believe that this year's exchange rate should pay more attention to the change of the real effective exchange rate, and further develop the role of exchange rate in regulating the balance of payments, guiding structural adjustment, enhancing the ability of balanced economic growth and restraining the rise in prices.

According to the data released by the bank for International Settlements, in 2007, the effective exchange rate of RMB appreciated by 5.13% and the nominal effective exchange rate appreciated by 1.63%.

The difference between the two is relatively large, indicating that China's domestic inflation level is relatively high in 2007.

Experts believe that accelerating appreciation, especially accelerating the appreciation of nominal effective exchange rate, will help to curb inflation.

Ding Zhijie, vice president of the finance and Economics Institute of the University of foreign trade and economics, has pointed out that the nominal effective exchange rate of RMB will rise by 5%, which will produce a marked tightening effect on the economy.

The rapid appreciation of RMB in the first quarter of this year is not only a normal pressure of domestic and foreign appreciation, but also a very important reason to coordinate inflation with inflation in China.

In the first quarter of this year, the cumulative appreciation of RMB against the US dollar reached 4.06%, which exceeded the level of 2006, and was equivalent to the appreciation level in the first 8 months of 2007.

Traders of a large state-owned bank believe that the supply and demand of domestic foreign exchange market is also the reason for the recent appreciation of the renminbi. Some domestic financial institutions sell their foreign exchange on a large scale to promote the appreciation of the renminbi.

The rising international raw material prices will drive the domestic price index upward and increase the input inflation pressure. The appreciation of the RMB will help reduce the cost of energy import and ease the inflationary pressure, but this requires a certain pmission time.

In its three quarter monetary policy report last year, the central bank said that the appreciation of the local currency is conducive to curbing domestic inflation. In the context of increasing dependence on imports of resource products, the moderate appreciation of local currencies will help to reduce the increase in import costs in the local currency.

In 2008, the appreciation of RMB has entered a critical year. Accelerating appreciation is not only a passive demand from outside, but also an active demand for domestic economic adjustment. This appreciation will have a profound impact on domestic economic life, external capital and trade relations, and even on the global economy, finance and monetary system.

At present, the accelerated appreciation will help curb the excessive growth of exports and foreign exchange inflows, as well as ease imported inflation. It is a monetary tightening tool in the context of high growth and high inflation.

"Adhering to the policy of expanding domestic demand, adjusting the relationship between investment and consumption, and promoting economic growth from mainly relying on investment and export promotion to relying on consumption, investment and export coordinated pull" are the economic development directions put forward in the government's work report.

In such a profound pformation process, the appreciation of the local currency will nurture opportunities for investment, expansion, development and Optimization in many fields, which is conducive to a healthier and faster growth of China's economy.

The appreciation may lead China's economy and finance to enter a stage of explosive development, but it may also leave hidden trouble for sustainable development.

The financial crisis triggered by hot money is the most alarming trap.

After the 70s of last century, the yen appreciated sharply against the US dollar for many years, with a maximum appreciation of 2.5 times, and the stock market also increased 3 times in 80s.

The withdrawal of hot money has led to a sharp fall in the stock market.

In the early 90s of last century, the Nikkei index fell all the way from a high of 39000 points and dropped back to 14000 points in the following two years, which is considered to be one of the most serious stock disasters in the world.

Analysts believe that the invasion of hot money is just the beginning of danger. The withdrawal of hot money is the real crisis.

For this point, regulators have a very clear understanding.

Since the beginning of last year, the central bank has begun to strengthen supervision over cross-border capital flows, and this year's work will be intensified.

Industry experts expect that, apart from the purpose of inflation appreciation, the fluctuation of the RMB against the US dollar will lead to the use of more risk aversion tools, or even exclude the deepening of convertibility of RMB.

For example, the renminbi will become an international settlement currency in the future.

The development of this work will help our country better integrate into the world economic system and closely trade with neighboring countries, which is conducive to further improving the RMB exchange rate formation mechanism, is conducive to the development of China's financial market and strengthens our country's ability of resource allocation in the international financial market.

While domestic inflation continues to rise, the renminbi is rising against the US dollar, with an appreciation of over 4% during the year.

"Dollar's rapid and derogatory effect"