Guo Tianyong: How To View The Rise And Fall Of RMB?

　 Since the beginning of this year, what have been the climax of RMB appreciation? What are the effects on the domestic and international markets?

Around 2010 RMB appreciation The problem has formed three minor climaxes.

The first time: in March 15th, more than 100 congressmen sent a letter to Obama, asking the US government to list China as a currency manipulator and to impose countervailing duty on China's exports to the US. In March 16th, more than 10 members represented by Schumer and Graham announced the drafting of a new bill on exchange rate issues. The big momentum of the lobbying storm is aimed at putting China in a "currency manipulator" in the US Treasury report submitted to Congress (according to the usual practice of April 15th, but postponed to July this year). But in fact, the US Treasury's semi annual report on international economic and exchange rate policy does not include China as a currency manipulator. In June 19th, the people's Bank of China announced the resumption of foreign exchange reform due to the needs of internal economic development and external pressure from the international economic situation. And the positive response and recognition of the international community. The exchange rate of RMB against the US dollar has remained at around 6.827 before the reopening of the US dollar, with a slight fluctuation. Since June 21st, the bilateral fluctuation of the RMB exchange rate has increased significantly. As of July 23rd, the RMB exchange rate has appreciated by 0.72% against the US dollar in 25 trading days. At the same time, market expectations for RMB appreciation are significantly lower.

The second time: in the mid-term elections of the United States in November, the Democratic Party is unable to effectively and effectively reverse the economic situation in the crisis, and may lose support. So in September 13th, 93 congressmen signed a letter jointly, urging the Democrats to take action to take a tough stance against China's exchange rate policy. On the 15 day, the US House of Representatives fundraising committee will hold a two day hearing on the issue of RMB exchange rate. On the 16 day, US Treasury Secretary Geithner attended the hearing and testified. In response to mounting pressure from Congress and some unions, the Obama administration has changed its cautious attitude towards the RMB exchange rate and publicly expressed its dissatisfaction with the renminbi's "appreciation too slowly". These have contributed to the rapid appreciation of the RMB since September. Since September, the fluctuation of the central parity of RMB against the US dollar has increased. In general, the RMB has continued to strengthen. On the 14 day, the central parity of RMB against the US dollar has risen 131 basis points again, reaching 6.7378. For third consecutive days, it has hit a new high since July 2005. This shows that the elasticity of RMB exchange rate is increasing.

The third time: in October 1st, the United States House of Representatives passed the "exchange rate reform to promote the fair trade act", aiming to impose special tariffs on the so-called undervalued exchange rate countries, so that the high-profile RMB exchange rate dispute between China and the US will be upgraded again. The 16 countries of the European Union put pressure on China in October 5th to urge the renminbi to appreciate, pointing out that the low RMB exchange rate affected the economic recovery in Europe. The pressure exerts a catalytic effect on the appreciation of the renminbi in October. In October 15th, the yuan quoted 6..6497 yuan against the US dollar and renewed the new high since the reform.

　　 What is the essence of international appreciation of RMB appreciation? What are the motives of the major developed countries and other developing countries to oppress the appreciation of the renminbi?

On the one hand, it can restrain China's exports and expand China's imports, thereby reducing the speed of China's economic recovery and continuing growth and restraining China's development. On the other hand, it can make up the balance of payments deficit caused by insufficient competitiveness and enjoy the wealth transfer brought by RMB appreciation.

The motives of the main developed countries: the United States believes that the appreciation of the renminbi can slow down the huge trade deficit in the United States and cure the current high unemployment in the United States. The United States needs to shift domestic political pressure from high unemployment to international problems. At the same time, at present, the United States wants to escape the international debt through the depreciation of the US dollar and redistribute the global wealth. However, it can not do whatever it wants because of the restraint of the RMB exchange rate. In addition, the United States is afraid that China will be strong and threaten its hegemonism, and the sharp appreciation of the RMB will hurt China's interests and restrain the sustained and rapid development of China's economy. Japan, as the most important ally of the United States in Asia, must take measures to maintain consistency with the United States. European countries want to squeeze China's export space and open up China's huge emerging market by pressing the appreciation of the renminbi.

Other developing countries' motives: many developing countries such as Mexico, India, Brazil and China are in the stage of industrial upgrading and economic transformation, and there is great competition between them. Obviously, if the renminbi appreciates, it will weaken the advantages of Chinese products, and the export advantages of these countries will be greatly increased, including exports to China. At the same time, it will also weaken China's growth.

　　 Why RMB now? Internal depreciation The phenomenon of external appreciation will exist simultaneously?

According to the theory of purchasing power parity, the domestic price level should fall at the same time when the appreciation of the local currency is going on. The domestic price level should rise at the same time when the currency depreciates, and the internal value of money should be consistent with the direction of external value. As some empirical results show, exchange rate has a negative impact on CPI, that is, RMB appreciation has a certain effect of transmission (inhibition) on inflation, but the transmission effect is relatively small, which can not offset inflation caused by factors such as inflation expectations, money supply increase, foreign hot money inflow and food shortage caused by climate factors. At the same time, the impact of the international capital brought by the appreciation pressure of the RMB exchange rate will increase our foreign exchange reserves, which will make the central bank passive in currency, and to a certain extent, it will also exacerbate China's inflation. For our country, there are two main factors:

One is the reasons for China's foreign exchange management system. Our country adopts a managed floating exchange rate system, which has strong control over international capital flows. Foreign exchange market is not entirely influenced by market factors, and more depends on government regulation and control. Under such institutional arrangement, the impact of monetary policy on the value of the renminbi will weaken to some extent. On the one hand, the excess liquidity in China has brought inflation expectations and made the RMB depreciated internally. On the other hand, foreign exchange intervention in the foreign exchange market offset the impact of excess liquidity.

The second is caused by the development of China's economic entities. At present, China's economic growth rate is still at a relatively high level, and its economic strength is strong, especially in the international trade, which has been in a favorable position. Under the condition of limited supply and rising demand, the RMB has appreciated abroad. In addition, the liquidity surplus brought by China's relatively loose monetary policy has blown up asset price bubbles to a certain extent. Based on this expectation, speculative demand driven by international hot money has also become a factor of RMB appreciation to a certain extent.

It can be said that under the impact of certain monetary policies, China's inelastic exchange rate system and the larger economic growth potential of China have brought about the depreciation of RMB and the emergence of external appreciation.

　　 This kind of internal depreciation has an external appreciation. economic impact Geometry?

This kind of internal depreciation and external appreciation indicate that the purchasing power parity is not established in China at present. In fact, the real exchange rate of RMB is rising, and the international competitiveness of Chinese products is strengthening. This will help to rectify the imbalance of balance of payments and help alleviate the situation of global economic imbalance.

However, inflation is the decline of the purchasing power of money, the real consumption ability of residents is reduced, the profits of enterprises are compressed, and the high inflation rate leads to the negative interest rate of savings deposits. A large number of overseas hot money is pouring into the Chinese market to push up asset prices such as house prices. This also strengthens inflation expectations and asset price bubbles, and there is a risk of hyperinflation, which seriously endangers economic development.

China's export enterprises generally lack core competitiveness, so RMB appreciation is not conducive to the steady development of China's export enterprises; as a result of China's long-term dependence on resource imports and loss of pricing power, the import cost of related basic products will not be effectively reduced, so the appreciation of RMB will be very limited to the import enterprises. After the appreciation of RMB, enterprises must adjust the composition of export commodities, produce high value-added products, appropriately reduce the export proportion, and force the upgrading of industrial structure. {page_break}

At present, what are the main concerns about the RMB appreciation in China? What are the inherent problems in China's economic development?

First, the appreciation of the renminbi will increase the price of export products, thereby inhibiting exports, causing some enterprises to run difficulties and reduce employment, and weaken the competitiveness of Chinese goods in the international market, and dampen China's economic recovery. Secondly, the fluctuation of exchange rate will bring additional burden and panic to many import and export enterprises, which will inevitably increase the cost of foreign exchange risk. Moreover, the appreciation of the renminbi and its anticipation will further stimulate the influx of hot money into China's capital market, resulting in asset prices rising and causing asset bubbles. At the same time, the central bank's behavior to absorb international hot money and passively put money into China will aggravate the grim situation of China's inflation. In addition, China, as the largest creditor country in the United States, holds a large number of US government bonds with its economic downturn and currency depreciation, resulting in the depreciation of its foreign exchange reserves.

Problems in China's economic development: first, the comparative advantage of China's exports mainly comes from the cost advantage of cheap labor, mainly labor-intensive products, low value-added products and low technological content, and at the low end of the industrial chain. China is an extensive mode of economic development. Many industries have problems of backward technology, high pollution and high energy consumption. The new and high-tech industries and emerging industries are relatively few. The industrial structure needs to be optimized and the mode of economic development needs to be changed, so as to enhance the core competitiveness and maintain the sustained development of China's economy. Second China's huge trade surplus stems from a large surplus of trade in goods. On the contrary, China's trade in services is actually in deficit. This shows that China's service industry is relatively backward and needs to be vigorously developed and perfected.

　 Based on the possible impact of RMB appreciation on exports, how should China create "China's trade circle"?

In January 1, 2010, the establishment of the China ASEAN Free Trade Area, the development of regional economic integration and the establishment of a regional cooperation mechanism with ASEAN countries are an inevitable and positive choice for China. First of all, we need to strengthen exchanges among high-level countries to promote economic and trade cooperation and achieve mutual benefit and win-win results. Secondly, we should further open up the market and seek development through innovation. RMB can be settled in trade so as to bypass the US dollar. Avoid further increases in US dollar reserves. At the same time, we should actively link up and cooperate fully. China and ASEAN's cooperation in the field will be launched in an all-round way, and cooperation in customs, commodity inspection, transportation and finance will be deepened, and efforts will be made to achieve and eventually achieve zero tariffs on the vast majority of products traded with ASEAN. To promote the development of China's trade and regional economic prosperity.

　 What is the source of inflation in China?

Judging from the causes of formation, the inflationary pressure has its own unique characteristics, that is, the superposition of internal and external factors, and the dual problems of monetary and economic aspects.

From the perspective of monetary factors, after the international financial crisis, China launched a package of economic stimulus plans to create a loose monetary environment for economic recovery. On the one hand, the increasing scale of credit puts the macro economy in reverse direction, and on the other hand, it also leads to excess liquidity. The over supply of money has provided a hotbed for price rise, and speculation in the investment field has also pushed up asset price bubbles to form a general trend of rising consumer prices and asset prices. At the same time, trade surplus and hot money inflow also objectively expand liquidity. The expanding trade surplus has greatly increased foreign exchange reserves and foreign exchange reserves. The huge foreign exchange reserves have increased the difficulty of regulation and control. In order to maintain the relative stability of the exchange rate, the central bank has to put the underlying currency into the market and form passive currency. More importantly, the hot money hidden under the surplus clothing has poured in, forming a liquidity boom and blowing up asset bubbles, which will contribute to inflation. In addition, the new round of quantitative easing policy in the US has led to increased inflation pressure. On the one hand, in the case of the depreciation of the US dollar and the excess liquidity in the international market, there will inevitably be more hot money being introduced into China, which further aggravates the excess liquidity in China. On the other hand, the rise in commodity prices, which are mainly priced in US dollars, will also bring import inflation in China.

From the perspective of economic environment and other factors, due to the frequent natural disasters throughout the country, the supply of some commodities, especially agricultural products, is relatively low. Major natural disasters such as the Southwest drought, the Qinghai earthquake and the Hainan floods have seriously damaged the summer harvest agricultural products, coupled with the increased production costs of agricultural products, and the imbalance between supply and demand to drive up the prices of agricultural products. In addition, with the development of financial derivatives, the market connection between the grain market and the money market and futures market is becoming more and more closely linked, thus forming a trend of financial liberalization in the grain market. As a futures target, grain has two attributes of commodity and finance. The price of grain is determined not only by supply and demand, but by money and capital. The relative shortage of grain has led to the hoarding and speculation of grain markets, pushing up grain prices. Finally, the reduction of supply in the international grain market has also caused the pressure of inflation in China.

　 How to control inflation from its internal sources, such as excessive currency?

Judging from the adjustment effect and economic situation of China's monetary policy, it is a realistic choice to change monetary policy from loose to steady. The reserve requirement ratio has been raised three times in November, reaching a height of 18.5%. However, from the point of view of regulation and control, the adjustment of quantitative tools is not effective enough to deal with inflation. In addition, the issuance of the central bank has begun to show some difficulties. This has already reflected from the side that the space for quantitative tools to implement has been getting smaller and smaller. On the contrary, China's deposit benchmark interest rate is only 2.5%. From the current economic data, the CPI in the first three quarters is 2.9%. Even if we add the CPI data of 4.4% and 5.1% in October and November, the annual inflation rate can basically stabilize at around 3.5%. Therefore, there will still be more room for price tools in the future. Although China's economic structural adjustment has not been completed, raising interest rates may bring some side effects to economic growth. However, compared with the current inflation rate, the increase of interest rate has limited effect on the economy. Moreover, moderate increase in interest rates is also conducive to opening up the space of quantitative tools and expanding the influence of quantitative tools. At the same time, some counter cyclical macro Prudential management measures should be considered to play a common role with traditional monetary policy tools in order to improve the operational efficiency and effect of macroeconomic policies.

　 Now there is a view that we can use RMB appreciation to resolve inflation pressure. Do you think this is an effective way? Why?

In addition to the above regulatory policies, we should also appropriately enhance the role of exchange rate policy in macroeconomic policies. On the one hand, if there are still problems in inflation management next year, and the traditional monetary policy is subject to certain constraints, it is also necessary to provide appropriate coordination of exchange rate policies. On the other hand, China's long term economic growth and huge trade surplus have increased the pressure of RMB appreciation. It is also appropriate to mitigate this pressure through appropriate changes in exchange rate policies. Moreover, an appropriate appreciation can also reduce the risk of imported inflation and even reduce the pressure of inflation from the side. From these two points of view, RMB appreciation can really relieve inflation pressure. But it should be noted that the exchange rate policy alone can not completely solve the inflation problem. As a price tool, the leverage of the exchange rate policy has a great influence, especially when considering the enterprise level, it still has some limitations. Therefore, when we apply the exchange rate policy, we should more coordinate with other regulatory policies, which requires greater exchange rate flexibility and more flexible matching of different policy tools, so as to play a greater role in the stable policy keynote next year.