How To Reform A Flexible RMB Exchange Rate?

< p > from the perspective of volatility, the daily average volatility of the RMB exchange rate has reached 0.12%, 3 times the average value of 0.04% in 2013, but it still has a big gap from the average daily level of 0.39% of the world's major economies in 2013.

For the single day maximum volatility, the maximum volatility of the RMB exchange rate from March 17th to April 30th reached 0.3%, which was 0.18% larger than that in 2013, but still far below the average level of 1.6% of the world's major economies in 2013.

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< p > < strong > how to effectively curb hot money arbitrage < /strong > < /p >

"P >" from the rate of volatility, the average daily fluctuation rate of RMB exchange rate after expansion is 0.19%, which is more than 0.06% in 2013, but it is still less than half of the daily average fluctuation rate of the world's major economies in 2013, 0.53%.

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< p > we can see that although RMB exchange rate elasticity has increased after expanding the fluctuation range in March 17th this year, there is still a big gap between the RMB exchange rate elasticity and the world average.

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< p > in view of the enlargement of the exchange rate fluctuation interval in order to curb the hot money abroad, we try to represent the exchange rate elasticity by means of volatility, and estimate the level that should be achieved by considering the fluctuation of the RMB closing price based on the suppression of hot money, and compare it with the actual level of elasticity after the expansion.

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< p > because the spread of interest spread originates from higher domestic and foreign spreads and lower exchange rate elasticity. In order to preliminarily estimate how much the daily average volatility of the RMB exchange rate can achieve in order to effectively curb the hot money arbitrage, we draw the scatter plot of the exchange rate elasticity (X axis) of the 10 year yield of the world's major economies (including China) and the United States, representing the exchange rate elasticity of the daily average volatility of the exchange rate (Y axis), and make a simple (one yuan) linear regression.

The economies on the right side of the Y axis (within and outside the margin) and below the regression line (lower exchange rate elasticity) are more likely to be hot money arbitrage, and the farther the distance is, the greater the pressure of hot money inflows. China is the farthest economy on the right side of the Y axis, under the regression line and the distance from the straight line, that is, the most attractive economy for hot money.

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< p > according to the regression equation, the rate of RMB exchange rate should reach 0.50% when the level of RMB exchange rate between China and the United States in 2013 should be up to 0.06%. In fact, the fluctuation rate of RMB exchange rate in 2013 was only about 0.06%, which greatly encouraged arbitrage trading.

After the expansion in 2014, the RMB exchange rate volatility increased to 0.19%, but there is still a gap with 0.50%.

The daily average volatility of 0.50% is close to the world average of 0.53%.

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< p >, we can see that RMB exchange rate flexibility needs to be further improved, whether from its own demand to curb hot money or from a href= "http://www.91se91.com/news/index_c.asp" > International /a.

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< p > < strong > can the elasticity of exchange rate be maintained < /strong > /p >

< p > according to the above analysis, since the expansion of exchange rate volatility in March 17th this year, the elasticity of RMB exchange rate has increased from absolute level compared with 2013, but there is still a big gap between the RMB exchange rate and the 0.50% needed to curb hot money.

In this regard, we need to pay more attention to the development trend of exchange rate elasticity (volatility and volatility). Can we see whether the elasticity of "expansion" can continue? < /p >

< p > observing the trend of daily average volatility and 10 day volatility of RMB in 2014, it can be found that the amplitude and volatility after peak expansion reached 0.30% and 0.34% respectively in March 20th and March 24th, and then gradually narrowed, and now they have gradually dropped back to the level before expansion: April 30th volatility and volatility have been 0.1% and 0.07% respectively.

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< p >, therefore, at least from now on, the increase of RMB exchange rate elasticity is only a one-time behavior, rather than a sustainable state.

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< p > "enlargement" is only a mechanism of a href= "http://www.91se91.com/news/index_c.asp" > volatility > /a > impulse rather than elastic enhancement. Is this the problem that has happened in this expanded wave, or is it a chronic disease that has always existed? < /p >

< p > we carried out a statistical analysis of the fluctuation in the first two "enlargement" (the fluctuation of RMB to us dollar in May 2007 from 0.3% to 0.5%, and from 0.5% to 1% in April 2012).

The results showed that in May 2007, the fluctuation rate increased to the end of 2007, but the volatility gradually dropped back to the beginning of the year. In April 2012, the expansion rate fluctuated to the pre expansion level in less than a month after a rise, and the elasticity of exchange rate basically remained unchanged at the end of the year. The year-end volatility was even smaller than that at the beginning of the year.

The above analysis shows that expanding the range of exchange rate volatility is not a sufficient condition to increase exchange rate flexibility.

Then, how can we really enhance the flexibility of RMB exchange rate? < /p >

< p > we have repeatedly verified in the previous reports that the change in the intermediate price can affect the market price trend, and therefore speculate that the elasticity of the intermediate price may be an important determinant of market price elasticity.

In this regard, we try to test the relationship between the fluctuation of the US dollar against the RMB's intermediate price and the closing price volatility.

The results show that: except for 2014, the fluctuation of intermediate price and closing price volatility are basically the same. That is, the fluctuation rate of mid price volatility will increase correspondingly, but the fluctuation rate of the intermediate price will be lower.

The only exception is in the first quarter of this year, because the RMB exchange rate suddenly turned to "derogatory" and the short-term impact of the expansion of the March 17th volatility interval, the closing price volatility has been greatly improved under the background of lower middle price volatility.

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< p > further, we calculated the volatility and closing price volatility of the world's major economies relative to the US dollar in 2013.

Since the exchange rate of these economies has no concept of intermediate price, we approximate the mean value of the daily maximum and lowest price to represent the middle price, and then calculate the volatility.

The results show that there is a highly positive correlation between the volatility of the intermediate price and the closing price volatility, that is, the high volatility of the middle price economy has a high volatility of closing price.

According to the regression equation, if the fluctuation rate of the closing price of the RMB wants to reach 0.50% to stop hot money, the fluctuation rate of the RMB intermediate price must reach 0.38%, while the fluctuation of the RMB intermediate price in 2014 will be even lower than that in 2013, which is only 0.06% now.

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Below P >, it can be seen that under the condition that the elasticity of intermediate price is insufficient, it is better than merely expanding the fluctuation range of exchange rate.

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< p > < strong > how to improve < a href= > http://www.91se91.com/news/index_c.asp > RMB > /a > exchange rate elasticity > /strong > /p >

< p > we will further test the fluctuation of RMB against the euro and RMB against the yen's closing price and the middle price.

The results show that the fluctuation rate of the euro's closing price to the RMB and the closing price of the RMB against the Japanese yen are 0.45% and 0.76% respectively, which is similar to the euro dollar fluctuation rate of 0.46%, the US dollar to Japanese yen volatility 0.76%, and the two are already enough to curb the volatility of the hot money arbitrage 0.50%.

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< p > calculate the elasticity of the two party's middle price again.

In 2013, the average fluctuation rate of RMB against the middle price of the euro and the central parity of RMB against the yen was 0.49% and 0.78% respectively. The average daily adjustment rate of RMB against the euro and the central parity of RMB against the yen was 0.37% (300 basis points) and 0.57% (368 basis points) respectively.

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In summary, the author suggests that the daily adjustment range of the US dollar to RMB should be moderately raised in the future. In order to meet the above 0.38% of the US dollar against the RMB intermediate price volatility, referring to the relationship between the fluctuation of the euro price and the average daily adjustment rate of the RMB, the average daily adjustment of the US dollar to RMB should be roughly 6 times to 0.29% from the current 0.05%, that is, the average adjustment of the mid day price should reach 180 basis points relative to the 6.2 US dollar exchange rate level at the present 6.2.

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In addition to widening the fluctuation range and raising the elasticity of the middle price, in order to improve the elasticity of RMB exchange rate, we can also try to reduce the frequency of the announcement of the intermediate price, and from the daily announcement to a longer interval, so as to prepare for the eventual abolition of the middle price and the realization of the free floating of the RMB exchange rate in the future. P

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