Reform To Enhance The Effectiveness Of Monetary Policy

< p > < a > href= > http://www.91se91.com/news/index_cj.asp > > /a > > since the start of mid March, the exchange rate of RMB against the US dollar is basically on the decline.

There is a view that the purpose of the RMB exchange rate reform is to devalue, devaluation can promote export recovery and provide impetus for economic growth.

Such a view may be reasonable, but from a deeper perspective, the purpose of the central bank's reform is to enhance the effectiveness of monetary policy.

According to the "Impossible Triangle" theory, the effectiveness of monetary policy has an alternative relationship with free capital flow and exchange rate fluctuation.

The people's Bank of China further expanded the fluctuation of the RMB exchange rate in the hope of reducing its intervention in the foreign exchange market. The central bank basically withdrew from normal foreign exchange intervention and gradually got rid of the passive mode of supplying foreign currency to supply the basic currency, so as to enhance the effectiveness of the domestic monetary policy.

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< p > < strong > two fundamental changes < /strong > < /p >

< p > if we agree that the purpose of the central bank's reform is to raise the effectiveness of < a href= "http://www.91se91.com/news/index_cj.asp" > monetary policy < /a >, we can predict that there will be two fundamental changes in the future: first, the price, that is, the possibility and magnitude of the fluctuation of RMB exchange rate will increase.

The increase in exchange rate also means that we can see that the RMB exchange rate has depreciated in the past period, and we may also see the appreciation of the RMB exchange rate in the coming period.

The RMB exchange rate may gradually say goodbye to the steady state formed after the exchange rate reform in 1994 and enter an era of interval fluctuation.

After the reform in 2005, although the RMB exchange rate was in a state of appreciation, the speed and extent of appreciation also showed a steady state.

From past experience, the result of the increase in RMB exchange rate is that the preventive and speculative demand for foreign exchange held by enterprises and individuals will increase, and the willingness to increase foreign exchange assets will be strengthened.

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< p > two is the quantity, that is, the fluctuation of foreign exchange holdings is decreasing, and the median change of the central bank's foreign exchange assets tends to be stable.

Instead of stabilizing the daily exchange rate, the central bank will withdraw from the daily intervention of the foreign exchange market, and the foreign exchange assets of the central bank will be stabilized.

An example of reference is that after the exchange rate reform in April 2012, from April to November, the central bank's foreign exchange assets fluctuated between 15 billion yuan, which has been significantly reduced compared with the monthly increment of 200 billion yuan previously.

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< p > recent five indicators indicate that the above changes are taking place. The purpose of the central bank's reform is to be achieved in a short period of time.

First, the fluctuation of RMB exchange rate increased from 6.04 to 6.26 at the beginning of April.

Two, the increase in foreign exchange holdings of financial institutions dropped from 437 billion 300 million yuan in January to 116 billion 900 million yuan in April. The increase in foreign exchange assets of the central bank dropped from 494 billion 500 million yuan in January to 84 billion 500 million yuan in April, indicating that the amount of intervention in buying foreign exchange by the central bank has dropped significantly.

Three, the proportion of foreign currency deposits in the total amount of foreign currency deposits has been rising, rising from 2.75% in January to 2.97% in April.

It can be seen that under the circumstance of increasing RMB exchange rate fluctuations, the domestic economic entities are more likely to hold deposit assets in the form of foreign currencies on the margins and gradually increase their willingness to hold foreign exchange.

Four, after February, the willingness to settle accounts between enterprises and individuals declined, from 69% to 57% in April, and the willingness to purchase foreign exchange increased from 37% to 47% in April. This indicates that enterprises and individuals are willing to hold more foreign exchange assets.

The five is the large scale decline in the long-term settlement and sale surplus, indicating that the main body of the economy is divided on the future exchange rate, and the behavior of foreign exchange settlement has changed.

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< p > < strong > two important policy inferences < /strong > < /p >.

The above changes will bring about two important policy implications: first, since the central bank does not increase its holdings of "a href=" http://www.91se91.com/news/index_cj.asp "http://www.91se91.com/news/index_cj.asp" > foreign exchange < /a > assets, it is necessary to promote individuals, enterprises and financial institutions to increase the increment of foreign exchange assets brought by current account surplus.

To this end, we should at least reduce the existing capital account control, promote capital account convertibility, promote capital outflow under capital account, and hedge current account surplus with capital account deficit.

Capital account deficit and capital flight are two different concepts. In the two quarter of 2012, a lot of analyses in the market confuse the two.

Through the analysis of China's foreign exchange management policy, we can find that since the beginning of this year, the safe has made obvious policy relaxation in promoting the simplification of direct investment profit remittance approval, immigration property pfer and foreign exchange examination and approval, personal investment (not entrusting qualified domestic institutional investors to invest) overseas stocks (Shanghai and Hong Kong through), and individual investment in overseas real estate and several other capital account convertibility difficulties.

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< p > two is that since the central bank has dropped out of daily intervention, the increment of foreign exchange will be significantly reduced in the future.

The central bank's habit of putting money into foreign currencies for the past 20 years may have changed radically.

At the beginning of the year, the author predicted that the increase of foreign exchange in 2014 would be about 1 trillion and 500 billion yuan, which was mainly concerned with the factors of foreign exchange reform.

Then, how to solve the problem of target growth of the basic money supply and M2? There are two central bank's policy measures, one is refinancing in the fourth quarter of last year's monetary policy implementation report column.

There are three points to be stressed about refinancing of the hot market. First of all, refinancing is a neutral monetary policy operation if the exchange rate is replaced by foreign exchange as a basic way of currency delivery.

Second, the current refinancing loans to CDB and other policy banks can directly and effectively support shantytowns and other policy projects, which can be seen as a manifestation of the policy "directional force".

Third, the pfer of basic money from passive foreign exchange to active refinancing, the effectiveness of monetary policy of the central bank has begun to increase.

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The second policy tool for the central bank to replace the foreign exchange fund and supply the basic currency is to reduce the required reserve requirement ratio.

Judging from the current situation, the possibility of decision-making in the short term will be very small.

There are two possible reasons. First, the current interbank liquidity is relatively ample. However, due to the problem of monetary policy pmission, the loose liquidity among banks can not effectively reduce the financing cost of the real economy.

At this point, a comprehensive reduction will only aggravate the loose liquidity among banks, and will not boost the real economy.

The two is that the market will generally see the full reduction as a signal for further easing monetary policy, but at present, policy makers do not seem to want to release such a signal.

The author estimates that in the middle of July, the decision level will assess the economic situation and policy keynote of the first half of the year, and then discuss the possibility of a comprehensive reduction.

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