Shen Jianguang: RMB Enters A New Era Of Two-Way Fluctuation

< p > since the central bank [micro-blog] launched the RMB exchange rate reform in July 2005, until now, except for the financial crisis, it has temporarily postponed the pace of foreign exchange reform. Most of the rest of the RMB exchange rate is in the process of appreciation.

Especially at the end of last year, a strong appreciation of the RMB made people feel that the RMB would immediately enter the "5" era.

But contrary to expectations, there has been a rare depreciation in the renminbi recently. As of March 14th, the central parity of the RMB against the US dollar has fallen to 6.1346, a new low since 2014, raising the market's concern.

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What is the reason behind the "P" > a href= "http://www.91se91.com/news/index_c.asp" > depreciation "/a"? There are many different opinions in the market.

The author is more inclined to think that the market should not be overinterpreted for the depreciation of the RMB.

In fact, the current RMB exchange rate has been at an equilibrium level. The era of < a href= "http://www.91se91.com/news/index_c.asp" > unilateral appreciation > /a > has become the past. In the future, the RMB will enter a new era of two-way volatility and the fluctuation will also increase.

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Where is the equilibrium exchange rate of < p > a href= "http://www.91se91.com/news/index_c.asp" > RMB > /a > in fact, since the exchange rate assessment can have various choices in terms of time and perspective, such as purchasing power parity, relative purchasing power parity, interest rate parity, macroeconomic equilibrium, basic equilibrium, behavioral equilibrium, etc., so far, conclusions are different and inconsistent.

In this regard, the International Monetary Fund [micro-blog IMF[] in its 2005 estimate of China's equilibrium effective exchange rate also pointed out that even if the model of the real value of RMB was changed little, the difference of the assessment results would be as high as 40 percentage points.

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< p > this is also true: in early 2005, UBS valued the RMB value undervalued by 20%, while Fraenkel, an economics professor at Harvard University, estimated that it was close to 40%.

In 2010, IMF continued to accuse the renminbi of being totally undervalued on different occasions and believed that it was logical to ask for the appreciation of the renminbi.

For this reason, I wrote three years ago to refute the view that IMF was obviously undervalued.

The author believes that there are two defects in IMF's support for RMB appreciation: one is overestimating the proportion of China's current account balance to GDP; the two is to set the real exchange rate of China into a constant or even depreciate.

In fact, the real exchange rate of RMB has been increasing.

In 2012, IMF revised the prediction of the RMB exchange rate and shook the theoretical foundation to support the substantial appreciation of the RMB exchange rate.

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Contrary to the view that the RMB exchange rate is undervalued, the author believes that in view of the new changes in the economic conditions at home and abroad, the current RMB exchange rate is actually approaching the equilibrium level in P.

From the perspective of balance of payments, since the financial crisis, the pattern of double surplus in China's balance of payments has been significantly improved, and the balance of payments has become more balanced.

Further to the current account, its share of GDP has dropped from about 10% to 2.1% in 2013.

In this regard, Yi Gang, vice president of the central bank, made clear at the IMF meeting that China's current account surplus is less than 4% of GDP, which is a sustainable and reasonable level.

According to this standard, the RMB exchange rate has been at a balanced level.

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< p > from the domestic situation, labor costs have also risen in recent years.

In 2007, China entered the Lewis turning point, and the traditional labor force was pformed from surplus to shortage, so that the balance between labor supply and demand could be achieved through the continuous increase of labor wages.

In recent years, it is obvious that the average wage of ordinary workers has increased significantly, and even more than that of newly graduated college students.

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< p > in short, in view of the fact that the trade surplus has narrowed, the domestic labor wages have risen sharply and the RMB effective exchange rate has appreciated more than 40% since the reform, the space for RMB appreciation has been very limited. Of course, considering the fact that this government is determined to push forward the financial reform and the marketization of the exchange rate, and the fact that China's economic growth is still more prominent worldwide and the current capital inflow does not outflow, it is unlikely that the RMB will continue to depreciate against the US dollar.

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< p >, therefore, in my view, the RMB will enter a two-way fluctuation era.

Recently, the central bank has declared that it is necessary to accelerate RMB capital account convertibility in 2014, change the management mode of cross-border capital flows, and gradually improve the RMB exchange rate formation mechanism, and expand the floating range of exchange rate in an orderly way. In March 15th, the central bank announced that the fluctuation range of RMB against the US dollar would be expanded from 1% to 2%.

This will cause the two-way fluctuation of the RMB against the US dollar this year, which is more common and will remain stable for a basket of currencies.

This obviously conforms to the goal of policy making to push forward the market-oriented reform of exchange rate.

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