RMB Appreciation Against The Euro Is 14.5% Passive, Exacerbating The Urgency Of Foreign Exchange Reform.

Passive appreciation of RMB

It is not always possible to achieve a calm and quiet time for exchange rate mechanism reform.

The appreciation of RMB against the euro in the past five months "will cause huge cost pressures to Chinese exporters and will also have an impact on the adjustment of trade policies".

In May 17th, at the regular press conference of the Ministry of Commerce, Yao Jian, spokesman, said "Shang" in "Shang".

The trillions of us aid programs temporarily curbed the contagion of the European sovereign debt crisis, but the rebound in the euro's exchange rate is still seen as a flash in the pan.

This year, the euro has fallen by nearly 14% against the US dollar.

Since the renminbi is actually pegged to the US dollar, it has led to a passive appreciation of the renminbi.

Yao said that from the beginning of this year to May 14th, the yuan had appreciated 14.5% against the euro.

The pressure of appreciation pressure is unloaded, and whether the reform window of the RMB exchange rate formation mechanism will be reopened will become a hot topic.

At this time, a huge scale of official activities between China and the United States - the second round of Sino US strategic and economic dialogue has been unveiled.

China again tried to exclude interference from outside.

In May 20th, the Chinese foreign ministry held a briefing for the dialogue. Zhu Guangyao, Assistant Minister of finance, reiterated the past Chinese government's attitude when answering questions: a country's exchange rate mechanism belongs to the category of state sovereignty, and external pressure will only delay the reform process of the RMB exchange rate mechanism.

Timing guess

The discussion on the timing of RMB exchange rate reform has become a quiz with no consequence.

The central bank issued the "monetary policy implementation report for the first quarter of 2010" issued in May 10th, which is causing many daydreams.

The central bank's report on foreign exchange reform is that "we will further improve the regulation and managed floating exchange rate system based on market supply and demand and reference to a basket of currencies, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level".

This exchange rate policy is much more obvious than the fourth quarter of last year.

The explanation is that the RMB exchange rate will be adjusted with reference to a basket of currencies, and it may increase its free floating space.

At present, as the RMB exchange rate reform has not yet been resolved, the US Treasury's semi annual report on international economic and exchange rate policy, which was originally published in April 15th, has not yet been disclosed.

The United States has publicly stated that it will further study the issue before and after several important talks.

This argument makes it clear that the Sino US strategic and Economic Dialogue held in Beijing in from May 24th to 25th or the group of 20 finance ministers meeting held in Busan, South Korea in early June has become more meaningful.

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The information sent by the central bank has made the market imagine, but the weak export data and the uncertainty of the external economy make the judgment of the market more difficult.

Especially with the spread of the Greek sovereign debt crisis, market risk aversion is heating up again.

Since the beginning of this year, the US dollar index has appreciated nearly 10%, and the euro's depreciation rate against the US dollar is close to 12%.

The data released by the Bank of International Settlements (BIS) in May 14th showed that the real effective exchange rate index of the RMB in April was 116.14, which was 0.4% higher than that in March.

In addition, the uncertainty of exports increased.

In the first four months of this year, China's trade surplus was only 16 billion 110 million US dollars, down 78.6% from the same period last year, and even a trade deficit in March.

Although the trade surplus was restored in April, it was only $1 billion 680 million a month.

The spread of the European sovereign debt crisis is even more striking.

Although the momentum of infection has been temporarily suppressed under the help of the European Union and the International Monetary Fund, many economists have judged that the crisis is likely to spread again.

Moreover, even if the crisis is gradually subsiding, most countries in Europe will face strict constraints on fiscal discipline. Once the economic stimulus policy is stopped, the risk of shrinking demand side will be more obvious.

The research department of CICC recently lowered its forecast for China's economic growth this year, and said that the recent tightening policies including real estate and the uncertainty of the external environment will bring China's economic growth rate to a high and low trend, and the risk of economic downturn will increase significantly in the second half of the year.

In addition, the sharp fall in prices of imported raw materials will also inhibit inflation pressure in China.

"Against this background, the appreciation of the RMB against the US dollar and interest rate adjustment will be postponed to prevent the economy from going up and down."

Jiang Chao, a macroeconomic analyst at Guotai Junan, also holds the same view.

He expects that China's trade surplus will not rise to more than $20 billion until October 2010, so the need for appreciation in the short run is not enough. The starting time for the appreciation may be postponed to the fourth quarter of this year or next year.

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Avoid passive adjustment

Some scholars do not seem so worried.

Song Hong, director of the International Trade Research Institute of the Institute of world economics and politics of the Chinese Academy of Social Sciences, believes that the debt crisis in Europe has not yet reached the level of the real economy.

It is different from the financial crisis. The financial crisis has led to a primary downturn. Now this debt crisis is a problem in the process of stimulating economic growth, and the impact is much smaller. Even if it has an impact on the real economy, it will take a long time.

Some scholars believe that China has missed the time window for multiple exchange rate adjustments, and the exchange rate reform can not be done without paying the price. It is better to adjust ahead of schedule instead of waiting for a sharp rise in surplus and a passive adjustment of external pressure.

This will not only ease trade frictions, but also provide more room for maneuver in diplomacy.

Chen Jinrong, the standard & Poor's government and public finance rating analyst, said that although China's real effective exchange rate has appreciated, it is more concerned about the bilateral exchange rate between China and the United States.

The dollar index is still likely to fall after the sharp rise in the previous period, so we can not say that the appreciation expectation has changed dramatically.

If the Chinese government wants to effectively manage this appreciation expectation, it must give a clear explanation of the exchange rate of the US dollar to the RMB at the right time.

Generally speaking, the appreciation of the renminbi will first affect China's exports, but a moderate appreciation is not unbearable.

Haitong Securities (600837) Chen Lu, chief economist of macro-economy, thinks that the biggest problem for export enterprises is the rising cost and inadequate operating rate caused by shortage of labor, rather than the order problem before.

At this time, a modest appreciation of the renminbi may be more beneficial.

In November this year, the United States will enter the mid-term elections.

"If China delays the time of foreign exchange reform, for example, to the three quarter, the tough political pressure will make China at a disadvantage in the negotiations."

Qian Liwei, an associate research fellow at the Institute of modern international relations of China, believes that this is the right time for China's currency reform.

He said, "of course, to move the exchange rate now is also very sensitive, so even if the exchange rate policy changes, it will be quietly changed."

Qian Liwei believes that although the US academic circles have "high price" on the appreciation of the renminbi, its purpose is only to force China to return to the exchange rate mechanism before 2008, that is, the renminbi is no longer firmly pegged to the US dollar, but is reentering the US dollar appreciation orbit.

"And now there are some misunderstandings about the formulation of the central bank's monetary policy report."

Qian Liwei said that although the report suggested that the currency basket should be used to adjust the exchange rate, the reference does not mean that it is pegged.

"The exchange rate will fluctuate, and even in the long run, there may be a depreciation."

At the same time, Qian Liwei also pointed out that a large part of the weight of the reference basket is still the US dollar. Even if the depreciation of the euro is very severe, the rate of exchange rate fluctuation is not so great.

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In addition to political considerations, the pressure of inflation seems to be an important reason for considering appreciation.

In May 18th, the national development and Reform Commission put forward the price trend in the two quarter. It is expected that the new price increase factor will be reduced, and the total price level of residents will keep rising slightly in the two quarter. The CPI increase in the two quarter after the two quarter may be around 3%.

At present, China's commercial banks have a one-year deposit rate of 2.25%, even if the central bank implements a 27 basis point interest rate increase, the real interest rate is still negative.

China's strong economic recovery and sustained negative interest rates have raised interest rate expectations.

It can be expected that interest rates between China and the US and Europe will expand once interest rates are raised, which may attract more hot money inflows and bring more trouble to policy control.

In fact, since the first quarter of this year, the problem of capital inflow has aroused the high degree of vigilance of the safe.

In May 14th, the safe released the quarterly balance of payments data for the first time.

China's balance of payments current account, capital and financial items continued to show "double surplus" in the first quarter.

Among them, the net error and the missed capital and financial items amounted to 55 billion US dollars.

The head of the safe explains that this estimate is not entirely comparable to the deficit of US $12 billion 800 million in the first quarter of 2009, but the larger net capital inflow is basically determined.

In May 17th, Guan Tao, director of the balance of Payments Division of the safe, expressed his personal view that the contradiction between the balance of payments and the overall imbalance was reappearing.

The pressure of capital inflow has become a new challenge in the near future.

Some analysts believe that the appreciation of the renminbi will not only help to weaken the appreciation expectation, slow down the influx of "hot money", but also ease inflationary pressure and turn some export products into domestic digestion, thereby reducing the pressure of domestic price inflation.

In view of this, the appreciation of the renminbi may come before the increase in interest rates. In addition, since the two or three quarter may be an accelerated rise in China's prices, the time for RMB remittance has not been much.

If we seek a calm and calm sailing for the RMB exchange rate reform, such a wish is good, but it can not always be realized.

The price that does not go through the rise and fall of the market is not enough to convince people.