The Definition Of Hot Money And The Harm Of Hot Money

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< p > < strong > is expressed by mathematical formula. < a > hot money < /a > is defined as: < /strong > /p >

< p > increase in foreign exchange reserves of countries (or regions) - foreign direct investment amount - trade surplus = hot money < /p >

< p > a business dictionary defines it as "moving quickly to any highly liquid short-term capital in any country that can provide better returns."

Another example is: "large sums of money moving rapidly in the international money market because of speculation."

Another example is: "capital flowing frequently in the financial market to seek the highest interest rate."

Again, "move from one place to another to seek short-term capital for quick profits".

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< p > Shanghai securities research and development center thinks: "the traditional hot money mainly refers to international short-term capital, but when discussing the hot money issue in China, we should make some adjustments to the definition of hot money combined with China's national conditions.

According to the role and influence of international capital on China's economic development, we can regard all the international capital flowing into and out of the system for the purpose of pursuing price differentials as hot money, which includes both international short-term capital and medium and long-term capital.

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< p > screening hot money and determining the amount of hot money is not easy, because the nature of hot money is not static. Some long-term capital can also be converted into short-term capital under certain circumstances, and short-term capital can be pformed into hot money. The key lies in whether the economic and financial environment will lead to investment from capital to speculation, and from speculation to escape.

China's current fixed exchange rate system and the external financial environment that the US dollar continues to depreciate has created the arbitrage opportunities for hot money in and out.

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< p > the influx of hot money to China is driven by many factors: it can avoid the risk of international financial turbulence, arbitrage RMB arbitrage, and speculate on China's stock market and property market.

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< p > < strong > harm > /strong > /p >

< p > < strong > false prosperity > /strong > /p >

< p > hot money enters the false prosperity that fuels the economy.

Hot money, while betting on the appreciation of the renminbi, will seize opportunities in other markets such as the real estate market, the bond market, the stock market and other markets.

The most obvious thing is the real estate market.

Over the past two years, China's real estate prices have risen sharply, and the national real estate prices have risen by more than 12%, far exceeding the consumer price index. Especially in some big cities such as Beijing, Shanghai, Hangzhou and Nanjing, the annual price of real estate has increased by more than 20%, or even 50%.

Even severe macroeconomic regulation and control in 2004 did not restrain the sharp rise in housing prices.

Therefore, we do not exclude some arbitrage capital from entering the real estate market of our country.

Many real estate developers are reluctant to reduce property prices, a very important reason is the illusion of international hot money, and to attract international hot money into the Chinese property market is a very important reason, that is, the substantial appreciation of the renminbi.

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< p > < strong > disturbing < a href= > http://sjfzxm.com/news/index_c.asp > > financial order > /a > /strong > /p >

< p > hot money enters a lot, increasing the scale of foreign exchange, affecting the normal operation of monetary policy, disrupting the normal operation of the financial system and intensifying the pressure of domestic inflation.

In 2004, the basic currency of the year reached about 660000000000 yuan. According to the estimated hot money inflow of about 100 billion US dollars, only the hot money inflow exceeded the whole year's base money.

This forced the central bank to forcefully write off the central bank bills in the open market. In 2004 alone, the central bank issued nearly 1 trillion and 500 billion yuan of bills to hedge, which greatly increased the operation cost of the central bank. At the same time, it also made China's monetary policy initiative decline. The effect of monetary policy was greatly discounted and increased the pressure of inflation.

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< p > < strong > appreciation pressure < /strong > < /p >

< p > hot money inflows, artificially increased the pressure of RMB appreciation.

China's current exchange rate system and the continued depreciation of the US dollar have attracted hot money into China.

Therefore, as long as the appreciation of RMB is expected to remain unchanged, the pressure of RMB appreciation will increase with the increase of inflow hot money.

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< p > < strong > affecting market < /strong > /p >

< p > the outflow of hot money makes a > economy < /a > violent fluctuations. If the hot money flows out rapidly, some speculative market prices will fluctuate greatly, such as the rapid fall of real estate prices, bond prices and stock market volatility.

For a long time, developing countries often want foreign exchange inflows due to shortage of domestic funds.

Before 1997, Thailand pursued a high interest rate policy, and a large number of hot money poured into Thailand. After the Thai baht depreciated, the "hot money" quickly fled and Thailand's economy collapsed.

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