RMB Exchange Rate To New High &Nbsp, Appreciation Or Inflation

In May 9th, the central parity of RMB against the US dollar was 6.4988, and the exchange rate changed to a new high since then. That night, the third round of Sino US strategic and economic dialogue began in Washington, D.C., and the two sides will once again clash on the issue of RMB exchange rate.

"Dialogue is definitely a game between the two sides in all aspects. The Chinese government has repeatedly stated that it will adhere to the independent exchange rate policy, that is, if the United States does not exert so much pressure, it may be worth rising faster. The United States may also slowly realize this. In this dialogue, the issue of RMB exchange rate may not be as prominent as before. Wu Qing, a researcher at the Financial Research Institute of the State Council Development Research Center, said.

"The most important thing is that China should not have a" all American support, we oppose it "mentality, but from the reality of China to decide the RMB exchange rate policy. Chen Bingcai, deputy director of the policy consulting department of National School of Administration, said.

Under the pressure of high inflation in China, all these scholars believe that the RMB should be accelerated. "Delayed appreciation means that the country will continue to suffer from high inflation and greater damage to the domestic economy." Chen Bingcai bluntly said.

Debate on "gradual" path

In fact, since April this year, the appreciation rate of RMB against the US dollar has accelerated significantly, breaking through 6.54, 6.53, 6.52, 6.51 and 6.50 five passes. In the first 4 months of this year, the renminbi has appreciated by 1.9% against the US dollar, while in April it appreciated by 0.88% in a single month.

"Since April, the accelerated appreciation of the RMB against the US dollar has several factors. First, it is related to the US dollar trend. In April, the US dollar continued to decline, and the RMB appreciation against the dollar accelerated. Two, the appreciation is related to some important events, such as the Sino US strategic and economic dialogue on the two day before the G20 meeting." Wu Qing said.

In addition, Wu Qing believed that Inflationary pressure The increase is also an important factor. exchange rate The appreciation and price rise can achieve the balance of international payments, but inflation is difficult to control. For example, 10% can achieve the balance of payments between China and the United States. The problem is that inflation will not necessarily stay after 10%, but it is likely to continue to rise, for example, reaching 20%, leading to domestic economic ups and downs, and ultimately devaluation of the renminbi. The continued depreciation of the Dong is an example.

In February 11th, the Central Bank of Vietnam decided to adjust the Vietnam shield to the US dollar reference rate from 18932 to 20713, with a depreciation rate of 8.6%, a fourth degree devaluation in 15 months. Nevertheless, Vietnam's inflation rate remained 13.89% in March.

"We must learn from Vietnam's lessons." Wu Qing believes that if we continue to use the incremental way of appreciation, as long as the expectation of one-way appreciation exists, and the market does not think that the RMB has appreciated in value, it will attract a large amount of speculative capital inflow. But one day, the market will find that the appreciation has come to an end, and there will be a massive withdrawal of speculative capital, and the RMB will begin to depreciate.

"A one-off appreciation of the renminbi, such as 10%, and then a basically free float, can avoid continuing to attract speculative capital inflows. The decision makers may be worried that this will lead to large capital outflows in a short period of time. But since the gradual appreciation will eventually lead to such a result, it is better to accelerate appreciation and allow the RMB to really float freely, so that the market can decide the equilibrium exchange rate. " Wu Qing said.

Chen Bingcai also believes that the Renminbi should accelerate its appreciation. "First of all, at present some of the domestic Bulk commodities The price is far beyond the international level, which means that the local currency should have a certain appreciation, which can stimulate imports and balance domestic demand and supply. Secondly, appreciation can inhibit the exploitation of rare earth resources and cheap exports. " He predicts that by the end of this year, the yuan will reach 6.2-6.3 level against the US dollar. "If the inflation pressure is bigger in the second half of the year, the RMB exchange rate against the US dollar may even exceed 6."

Export worries too much

Appreciation or inflation?

Appreciation or inflation? From the recent accelerated appreciation of the renminbi and the relevant statements of the decision-making level, the trend has gradually become clear.

"Under the pressure of inflation on China's economy, China has begun to talk more and more about how the strong Renminbi helps to curb domestic inflationary pressure on the US's call for accelerating the pace of RMB appreciation." Luo Wenjie, executive secretary of the US Treasury and strategic and economic dialogue, said recently.

On May 6th, Zhu Guangyao, Vice Minister of finance, said in reply to the question about the RMB exchange rate, the two sides knew the direction of RMB exchange rate reform. However, the Chinese side insisted that the reform goal should be to deepen the RMB exchange rate formation mechanism, while the US side emphasized the appreciation rate of RMB exchange rate. {page_break}

An important factor restricting the appreciation of the renminbi is the worry about export trade, but many analysts believe that it is too worried. "Some people oppose the appreciation of the renminbi on the grounds that the profit margins of Chinese export enterprises are low. For example, if the renminbi appreciates by 3%, a large number of Chinese export enterprises will go bankrupt, and unemployment will increase substantially. In fact, after the start of the reform in 2005, most of the export enterprises in China lived very well, and the prices of international commodities rose sharply since last year, which is much larger than the appreciation of the renminbi. Most enterprises have also lived up to this. There is no reason why the RMB exchange rate will not rise. " Chen Bingcai said.

Wu Qingyi believes that there is no need to worry about the appreciation of the renminbi in combating export trade. "From our research point of view, since the 2005 exchange rate reform, the expectation of RMB's one-way appreciation has led exporters to be reluctant to sign long-term orders, because in addition to the fact that few enterprises can establish NDF positions in Hongkong or overseas to hedge the risk of RMB appreciation, most enterprises are short of hedging risks."