British Newspaper: China's Exchange Rate Reform Will Affect The Global Financial Order.

According to British media reports, this involves the valuation of the renminbi, which is directly related to China's exchange rate policy, which may be on the verge of profound change. In fact, Beijing's attitude towards its currency may eventually become the most significant change in global macroeconomic policy so far in 2014.

The new price data show that the valuation of the renminbi is basically fair. Arvind Subramanian and Martin Kessler, an economist at the Pedersen Institute for international economics, have analyzed these figures carefully, and they concluded that the average price level in China is close to the required level compared with that in the United States. The answers given by other methods are slightly different, but the conclusion that the renminbi is no longer substantially underestimated seems to be tenable.

In recent years, China has been an excellent global citizen, partly because of the rising exchange rate, which helps to promote domestic consumption through promoting consumption, the report said. The appreciation of the renminbi will help to alleviate the huge trade imbalance between the US and China, and let some other emerging economies threatened by competitiveness take off some of the pressure.

According to the report, the momentum of RMB's unstoppable appreciation has also led to the vigorous development of interest rate trading, which is related to soaring short-term capital flows into China's domestic market. This is a double-edged sword. At a time when more credit is needed to cover the pressure of debt laden local governments and businesses, it provides financial resources for the financial system. But it also widened the internal credit bubble to an unsustainable situation, forcing China to strengthen the foreign exchange market's hard work to lower the currency.

In February, China decided to stop. It suddenly lowered the exchange rate by a few percentage points, and then increased the daily amplitude from 1% to 2%. Although this is described as part of the process of allowing market forces to play a bigger role in determining the exchange rate, it probably has other purposes.

The report said that at least the intention is to reduce or eliminate the capital flow of interest rate transactions flowing into China. This decrease in capital flows has forced the central bank to improve domestic liquidity conditions in order to prevent serious financial pressure.

But another possibility is that the authorities have realized that the further rise of the real exchange rate is dissatisfied and unacceptable at this point.

Diana Choiliwa of the Lombard Street Research Institute wrote: "banks lend money to companies in order to make them pay interest on old loans instead of focusing on any productive activities. The real economy needs currency depreciation, but this is right. Interest arbitrage And the game of borrowing can be fatal. RMB may be China's subprime mortgage. "

Reported that such a serious consequence is far from inevitable. China has foreign exchange reserves that can refinance bad debts that may arise in the financial system, and there is room for domestic finance to move forward. But whether it can do all this without further decline in the exchange rate seems to be more and more uncertain.

　　 China How can we permanently reverse the inflow? capital The upward pressure on the renminbi has so far been achieved through foreign exchange intervention, but it does not want to aggravate concerns about currency manipulation. China's desire to allow market forces to play a bigger role and to push the renminbi into an international currency will be further adjusted to direct the direct control measures imposed on domestic investors' outflows.

The report said that China's obstacles to the free movement of capital are almost higher than any other country in the group of twenty, but China's regulators recently announced a plan for "stock market trading interconnection" between Shanghai and Hongkong. Ultimately, the need to diversify Chinese portfolios by investing in foreign capital may become very large.

So far, China's exchange rate policy has prompted the official purchase of American government bonds on a large scale. According to the report, this situation may be replaced by the momentum of private sector purchases of stocks and real estate in the future, and other Asian countries will probably get disproportionate benefits.

All this may represent significant changes in the direction of global capital flows and the established global financial order.