Zhang Monan: Depreciation Of RMB May Aggravate External Debt Risk

Since mid February, the RMB exchange rate (CHY) in offshore markets and the RMB exchange rate (CNH) in offshore markets have changed in recent years, and the spot exchange rate against the US dollar has continued to fall in the middle price. Why does the renminbi trend "reverse"? This is once interpreted by the market as the result of "central bank [micro-blog] active intervention". However, in fact, in the process of devaluation, the central parity of RMB is stronger than the spot rate, indicating that the central bank's policy is more inclined to control the devaluation of the RMB, rather than the central bank's initiative to guide currency devaluation, but more from the global liquidity and the impulse impact of the Fed's QE.

The impact of pulse impact has already appeared in other emerging economies. In late January, when the United States announced its plan to reduce QE for the second time, the emerging country currency market represented by Argentina Peso was hit hard. Large scale asset selloffs are being staged in emerging markets such as Argentina, Turkey and South Africa, the second wave in emerging markets in the 5-6 months of 2013. Today, the RMB exchange rate on the offshore market continues to decline, to a large extent, indicates that the third wave of QE withdrawal from the US Federal Reserve is like ripples and waves passing to the periphery.

As the offshore market, which is measured by three indicators of cross border trade of RMB, RMB deposits and RMB bonds, is relatively small, it is more vulnerable to the impact of cross-border capital flows across the globe. Offshore renminbi naturally bears the brunt. Offshore renminbi has fallen to the lowest level in 8 months against the US dollar, indicating that offshore renminbi positions have been substantially reduced and accompanied by capital outflow.

Capital outflow and exchange rate depreciation may further trigger the risk of foreign debt. Data show that in 2013, Chinese enterprises, especially real estate companies, took advantage of the "Dongfeng" of RMB appreciation, issuing a large number of bonds abroad, and set a record of the global dollar debt issuance championship. The volume of debt issuance continued to grow in 2014. By the end of February, Chinese real estate enterprises had issued $7 billion 900 million of bonds in the global market, and once again won the global crown, which accounted for 38% of the global real estate issuance scale.

And with the yuan depreciation The risk is expected to start to ferment. A large degree of rigidity is expected. Once the devaluation of the currency is expected, it will be difficult to change in a short time. The latest Federal Reserve meeting on global currency "total valve" shows that the US Federal Reserve once again reduces the scale of bond purchases, reducing the monthly asset purchase scale from 65 billion US dollars to US $55 billion in April, and may start the rate raising process in early 2015. The narrowing of the US interest rate and the spread of foreign exchange may further lead to capital outflow. In view of the core role of the US dollar in determining global liquidity, it is expected that in the coming period, the decline of the foreign exchange center will inevitably lead to a decline in the water level of China's "pool of funds", which means that the function of storing water through foreign exchange channels has been changing to a leaky function. This will change the main channel of China's currency creation, and further aggravate the pressure of RMB depreciation and worries about China's economy.

In fact, for emerging market For the country, the fragility of the financial system and the completely floating exchange rate mechanism aggravate the exposure of risks. The Asian financial crisis is related to the process of financial liberalization. Under the impetus of the Washington consensus and IMF[micro-blog, the 80-90 era of the last century is the peak period of global capital account liberalization. Developing countries represented by Southeast Asian and Latin American countries have begun to make full use of foreign capital to develop the economy, but at the same time, no perfect capital control firewall has been established, especially for the management of capital outflows, especially those with high foreign debt ratio, large current account deficit and short foreign exchange reserves.

According to Paul Krugman's "three dollar paradox", a country or region monetary policy The three objectives of independence, free mobility of capital and exchange rate stability can not be achieved at the same time. If we want to meet two of them, we must give up another one. The large inflow / outflow of international capital is actually the goal of satisfying the free flow of capital, but directly impacts on the exchange rate and money market of a country. According to the bank for International Settlements, only 2% of the current foreign exchange transactions with a daily average of $4 trillion per day are caused by trade and international investment, and others are speculative transactions. These speculative capitals are highly sensitive to the exchange rate, spreads and price differences of various financial markets, and the economic policies of the countries concerned, and may overreact, thus generating an irreversible positive feedback mechanism for the entire financial market.

Over the past two years, short-term speculative capital and the rise of RMB arbitrage have accumulated a lot of risks. Once internal and external risks are catalyzed by capital outflows, chemical reactions must never be underestimated. I believe that the monetary authorities should strengthen the management of exchange rate fluctuations in offshore markets and onshore markets, pay close attention to the impact of RMB depreciation and possible chain reaction, avoid falling cliff prices and massive capital outflows. We should consider the Tobin tax and strengthen the security precaution mechanism for capital flows.

From an international perspective, international financial cooperation should be strengthened to cope with the new round of risk shocks. In order to deal with the financial risks that may arise in the future, we should deepen regional financial cooperation, jointly cope with the new shocks brought about by the withdrawal of the Federal Reserve Policy and the changes in the global monetary and financial structure, and accelerate the construction of the Asian financial stability agreement, such as the Chiang Mai initiative's multilateral agreement. At the same time, we should establish a self managed common foreign exchange reserve fund to achieve the Multilateral Initiative of Chiang Mai, that is, the relevant countries can promise to invest a certain amount of reserve funds to the fund, accelerate the construction of regional financial safety net, and earnestly safeguard the financial stability of China and even Asia.