Reasons For RMB Appreciation In Foreign Exchange Market

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< p > in the first quarter of 2013, < a href= "http://sjfzxm.com/news/index_cj.as" > RMB < /a > only appreciated 0.26% against the US dollar.

However, in April 2013 and May, the value of the RMB against the US dollar appreciated by 0.77% and 0.66% respectively, and the appreciation rate was significantly enlarged. The appreciation of these two months alone exceeded the appreciation rate in 2012.

Since 2013, the effective exchange rate of RMB has also shown a significant appreciation.

From 1 to April 2013, the nominal effective exchange rate and the real effective exchange rate of RMB increased by 4.30% and 4.63% respectively.

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< p > from the perspective of foreign exchange market, the reason for the appreciation of the RMB exchange rate is a href= "http://sjfzxm.com/news/index_s.asp" > foreign exchange market < /a > RMB is in short supply.

The gap between supply and demand is directly reflected in the increase in foreign exchange holdings, because foreign exchange refers to the size of the central bank and commercial banks buying dollars and selling renminbi in the foreign exchange market.

From 1 to April 2013, the monthly increments of China's foreign exchange holdings were 6837, 2954, 2363 and 294 billion 400 million yuan, respectively. The increase in foreign exchange holdings in January alone exceeded the increase in foreign exchange held last year.

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The increase in foreign exchange holdings is actually an increase in the conversion of foreign currency into Renminbi by the private sector in China, which stems from the massive inflow of international capital. On the other hand, it originates from the behavior that domestic residents and enterprises convert the US dollar assets into the assets of the people's currency under the expectation of RMB appreciation, while the latter does not involve cross-border capital flows. P

In the first quarter of 2013, China's balance of payments showed a double surplus pattern, the current account surplus reached US $55 billion 200 million, while the capital and financial account surplus reached US $101 billion 800 million, resulting in an increase of US $157 billion 100 million in China's foreign exchange reserves.

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The trade data from 1 to April in 2013, especially export data, caused widespread suspicion in P.

There is a large amount of evidence showing that a large part of the growth rate of export growth from 1 to 4 in 2013 is 18% from short-term capital inflows through pfer pricing and false trade channels.

For example, although China's trade surplus reached US $38 billion 600 million in the first quarter of 2013, according to UBS's estimate, the real trade surplus in the same period was only US $2 billion 400 million.

This means that the accumulation of foreign exchange reserves in the first quarter of 2013 mainly came from capital inflows.

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To sum up, from the point of view of foreign exchange market, the < a href= "http://sjfzxm.com/news/index_q.asp" > RMB appreciation "/a" since 2013 is mainly due to the pressure of RMB over supply caused by cross-border capital inflows, and the currency conversion behavior of domestic and private sectors under the expectation of RMB appreciation. "P"

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The main reasons leading to cross-border capital inflows include: first, China's domestic interest rates are significantly higher than the same level of foreign interest rates, and the continuous positive spreads lead to the influx of arbitrage funds, and the expectation of RMB depreciation is further enlarged to the attraction of interest spreads. Second, the uncertainty related to the eighteen major government changes and the fear of China's hard landing have gradually disappeared, reducing the risk premium of the Chinese market; third, the global investors' concerns about the European debt crisis and the uncertainty of the US financial market have dropped, and the risk preferences have correspondingly increased; fourth, the new round of quantitative easing policy in the developed countries has intensified the global liquidity surplus, resulting in a significant increase in the short-term capital size of the emerging market economies. P

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< p > however, in the past, cross-border capital inflow has also occurred, but the RMB exchange rate with the US dollar is generally stable. Therefore, the current rapid appreciation of the RMB is closely related to the intervention of the Central Bank of China in the foreign exchange market.

At present, the central bank mainly controls the exchange rate by regulating the middle price of the RMB exchange rate.

The central parity of RMB against the US dollar was in a relatively mild appreciation process from the end of last year to the first quarter of this year, but it began to accelerate appreciation since April this year.

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The reasons why the central bank recently intervened in reducing the RMB exchange rate are as follows: first, cooperate with the policy of expanding the daily average volatility of the RMB against the US dollar in P.

Yi Gang, vice president of the central bank, said at the IMF spring annual meeting this year that the central bank may continue to expand the average daily volatility of the RMB against the US dollar in the near future.

The rapid appreciation of the RMB against the US dollar before expanding the volatility may help to reduce the expected appreciation of the RMB, thus achieving the two-way fluctuation of the RMB exchange rate as soon as the volatility is widened. Second, the strategic economic dialogue between China and the United States will be held soon, and President Xi Jinping and President Obama will also meet.

Before this, let the RMB appreciate faster against the US dollar, which helps to reduce the possibility and intensity of the US exchange rate as the bargaining weight in the bilateral talks. Third, maintaining the strength of the RMB will help to further the internationalization of the RMB in the context of other collective weakness.

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< p > How do we see the relative size of market forces and central bank behavior in the rapid appreciation of the renminbi? I believe that the massive inflow of cross-border capital is still the most important factor in the current appreciation of the renminbi, and the central bank will push the boat forward under the changing market situation.

From the historical experience, the central bank usually does not create trends, but only after the trend is formed, it follows the trend or goes against the market.

This time it should be no exception.

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If the P strong trend of appreciation is sustainable, I think the probability is very small. More likely, in the second half of 2013, the appreciation rate of RMB against the US dollar will obviously slow down, and it is expected to reach 6.10-6.15 at the end of the year.

The main reasons include: first, when the external demand is still in the doldrums, the rapid appreciation of the RMB to the US dollar, especially the effective exchange rate of RMB, will have a significant impact on China's export growth.

The real export data from 1 to April this year are actually much lower than nominal data.

From a micro perspective, the current situation of Chinese export enterprises is not optimistic.

Once domestic investment growth declines, then the importance of export growth to short-term economic growth will be highlighted. The pressure of employment pressure caused by the export sector is also not optimistic. Second, the efforts of the Central Bank of China to make the RMB intermediate price rise rapidly are commendable, but the timing is worth considering.

In fact, during the period of devaluation of the RMB exchange rate last year, the Central Bank of China was able to create more space for the appreciation of the intermediate price of the RMB this year, if the Central Bank of China was able to make the central price of the renminbi conforming to the significant devaluation of the market trend.

As the current account accounts for a reasonable proportion of the GDP ratio, the fluctuation of the RMB exchange rate is driven by capital flows to a greater extent. At this time, the relaxation of the fluctuation range of the RMB exchange rate and the intervention in reducing the intermediate price may lead to overshoot of the RMB exchange rate.

Therefore, the Central Bank of China may ease the policy of easing the fluctuation range of the RMB exchange rate and enhance the guidance of the intermediate price. Third, recently, the Chinese government has strengthened the monitoring and management of short term capital flows, especially through short-term capital inflows through trade channels. It is expected that the short-term capital inflow in China may slow down in the coming period.

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< p > generally speaking, so far, great progress has been made in the reform of RMB exchange rate formation mechanism.

In the future, the Chinese government should continue to make efforts in two areas. First, we should further promote the reform of the interest rate formation mechanism of RMB, especially to achieve the marketization of RMB benchmark deposit interest rate.

Recent experience shows that if the interest rate level still has significant control, this will also create a constraint on the marketization of exchange rate, for example, cross border arbitrage activities will exacerbate the fluctuation of the RMB exchange rate; second, the Chinese government should maintain proper capital account control until the RMB interest rate and exchange rate are fully marketed and the Chinese financial market develops to a certain level.

Under the premise of capital account control, the RMB exchange rate movement is mainly dominated by the current account balance, and the volatility is relatively small. Once the capital account is liberalized, the RMB exchange rate is likely to overshoot in the wake of the large capital gains and losses of short-term capital, which will have an adverse impact on China's economic growth and financial stability.

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