Safe Inspection Basket To See RMB Exchange Rate Unclear

The willful dollar is affecting the behavior of the main body of the foreign exchange market.

On the same day, several customers in Beijing branch of the Bank of China (601988, stock bar) were queuing up to change their dollars before the counter.

"There are many people buying foreign exchange recently. This has been going on for some time."

A foreign exchange salesman said.

The rare balance of foreign exchange settlement and sales for several consecutive months is also a corroboration.

On that day, the safe issued a notice to carry out special inspections on the compliance operation of foreign exchange businesses for 7 banks, aiming at finding out the outstanding problems and potential risks in the operation of foreign exchange business.

Close to the sources of the safe, the seven banks are just large traders in foreign exchange business. They are workers, peasants, China, construction, diplomatic relations, CITIC and China Merchants Bank.

He thought this was not a routine examination.

And think of the two red envelopes issued by the safe last year at the end of last year, that is, 53 and 54, which may confuse the market. It is clear that decentralization and marketization will lead to a special inspection.

A BOC foreign exchange business explained that the move was not abnormal. Similar actions would happen every other year or two. But in the view of Xie Yaxuan, chief macroeconomic analyst at China Merchants Securities (600999, stock bar), it is no longer the general inspection that lasted for six months.

"The deficit in the last few months is an important inducement."

"The State Council has recently deployed the" two strengthening and two containment "special inspection work, and the three sessions will be implemented.

Those close to the safe said.

So, specifically to the safe, it is embodied in "containment of foreign exchange business, illegal operation and illegal activities."

Safe inspection basket

The past 2014 was very unusual, and perhaps "around the" inspection basket of the safe.

On the last trading day of 2014, the yuan closed 6.2015 against the US dollar and fell 2.3% year-round. This year, the RMB exchange rate fell for the first time in five years.

In contrast, the US dollar index has seen a rare increase in recent years, up 80 from the same period last year, and has risen 15% to 92.

In recent months, the sale of foreign exchange on behalf of banks has been in deficit for several months.

No one appeared in the financial crisis in 2008.

At this time, the foreign exchange situation has changed: in November 2014, foreign exchange accounted for 2 billion 200 million yuan in financial institutions, a sharp decline compared with the increase of 66 billion 100 million yuan in October.

Foreign exchange holdings have been decreasing since May 2014, and then fluctuated upward and downward.

At present, capital outflow and RMB depreciation expectations are gradually rising.

Xie Yaxuan thinks these are signs of vigilance.

"In addition to the direct incentives, such as the deficit in foreign exchange settlement, the majority of foreign exchange buyers and the outflow of funds, the reason behind the big inspection is that there is a conflict between exchange rate policy and monetary policy coordination."

As China's economy slows down, policymakers hope to maintain a relatively relaxed environment, which means lower interest rates and narrowing of interest margins at home and abroad, resulting in outflow of funds, which in turn will affect exchange rates and induce devaluation pressures.

To a large extent, it is necessary for the central bank to intervene to "sell the US dollar and buy the renminbi", but the result will ease the RMB.

"However," the foreign authority will increase the "friction" through inspection and reduce speculative money; it can even manage expectations, and it is a strategy.

"At the same time," Xie Yaxuan said, "at the same time, check the proportion of abnormal capital flows in the past, which helps to prepare for a rainy day."

In accordance with the Circular of the safe, the inspection focuses include the implementation of the bank's corrective actions on past inspections, the implementation of the internal control and business principles, and the compliance of foreign exchange businesses.

It is reported that the special inspection is divided into three stages: the bank self inspection and the foreign exchange bureau off-site inspection stage. From January 2015 to February 9th, the banking organizations conduct comprehensive self-examination, and the foreign exchange bureau conducts on-site inspections at the same time; the foreign exchange bureau on-site inspection phase, from February 10, 2015 to mid March, the foreign exchange bureau selects some branches of the banks to carry out on-site inspection; the bank rectification stage, before the end of May 2015, banks carry out rectification and implementation of the violations discovered by the self inspection and foreign exchange bureau inspection.

The "inspection basket" of the safe covers a wide range of businesses and individuals.

A self check table of the compliance operation of a foreign exchange business shows that the types of foreign exchange illegal business are: foreign exchange and cross-border capital collection and payment, settlement business; foreign exchange business (including long-term and derivative businesses) and foreign exchange loans and financing.

It can be seen that the intensity of inspection is quite modest.

"Do not have to be too nervous. In the new normal, this kind of examination may continue all the year round."

Liu Dongliang, senior analyst at the finance and marketing department of the head office of China Merchants Bank, said that this is mainly because the false arbitrage trade interferes with the market.

Since 2012, safe has been cracking down on such arbitrage activities.

A foreign exchange market source revealed that there are many practical problems.

For example, the local government may not be able to make foreign trade data too ugly. Some provincial units in the mainland have adopted a more tolerant attitude towards cross-border pactions without real trade background, though it is not an open door.

It may lead to the cross-border business of some coastal areas turning to the mainland, because the coastal government has taken a harder job.

A stormy day

However, before offering a special inspection,

Two red packets were distributed at the end of the year: the notice on the implementation details of the management measures for foreign exchange settlement and sale by foreign banks ([2014]53) and the notice on issues related to the foreign exchange management of overseas listing ([2014]54), hereinafter referred to as the notice.

"Cancellation of the policy of linking the comprehensive position of foreign exchange settlement and deposit to foreign exchange loan to deposit ratio", "cancelling the examination and approval of foreign funds collection and repatriation, simplifying registration and data submission" are the biggest highlights of Article 53 and No. 54 respectively.

Let's play back again, what happened in December 30, 2014 when the new policy No. 53 was released.

On that day, a wave of the RMB market was surging.

The position of foreign RMB dropped from 6.2395 to 6.2170.

The US capital bank bought the US dollar in 6.2350-90 for RMB to 6.25, but then stopped.

As a matter of fact, the sentiment of overlooking the renminbi is always dominant, so the difference between domestic and international prices has been maintained at 100-200 points.

In the recent swap period, the cost of overseas RMB interannual funds dropped to 1-2 points a day (within 10-12 days per day) as banks and customers made too many preparations for cross year positions.

In any case, these two red packets undoubtedly benefit the RMB exchange rate.

The new regulation loosening the bank's foreign exchange selling and selling behavior, reducing the bondage, and making the bank's trading behavior more active, the exchange rate can more accurately reflect the supply and demand, and the foreign exchange market can better find the equilibrium price; let the market make decisions and adapt to the normal two-way flow.

Article 54 has even been interpreted by the market as an alternative to the renminbi.

The central bank is also working hard to cope with the "unprecedented" downward pressure caused by the "strong dollar and slowing economic growth in China", trying to implement the commitment to withdraw from the normalization of foreign exchange market intervention.

At the same time, although the market has derived many imaginations on the "two strengthening, two containment" (strengthening internal control, strengthening external supervision, curbing illegal operations and curbing crimes), the objective is not to worry about it.

As stated in the previous personal appointment for us dollars, Ms Yang has already allocated some US dollar assets a few weeks ago, noting that the US dollar is strong, and she intends to increase the US dollar even though she does not think the renminbi will depreciate significantly.

Ms. Yang worked with her early friends and even changed 60% of her assets.

She has heard that hundreds of millions of Renminbi assets have been pferred to Hongkong through cross-border trade settlement channels.

Against the backdrop of the US dollar index hitting 92, the RMB exchange rate in 2015 was full of suspense.

In Liu Dongliang's view, under the background of the division of monetary policy between China and the United States, the RMB has the devaluation pressure, but it is more likely to enter two-way fluctuations instead of obvious depreciation. The fluctuation range may be at 6.0-6.35. The increase of RMB exchange rate elasticity means that the exchange rate risks faced by enterprises are greater than before, but also conducive to the development of hedging and trading market.

Ding Zhijie, a professor at the University of foreign trade and economics, has pointed out that structural adjustment is a strong support for RMB and that the RMB exchange rate breaking 6 is a matter of time.

But what is the status quo? It's not just internal worries, but also foreign elements.

"In the whole year, CPI grew by 2%, a 5 year low, far from the policy ceiling of 3.5% in 2014. PPI's continuous decline for nearly three years has made deflation a significant threat."

Yu Pingkang, chief economist of Huatai Securities (601688, stock bar), commented on price data in December 2014.

Zhang Monan, an associate researcher of China International Economic Exchange Center, said that the "strong dollar" opened the new cycle of global currency.

According to the International Financial Association (IIF), cross-border capital outflows from emerging markets will increase to $1 trillion in 2014, and the scale of capital flows to emerging markets in 2014 will fall to $1 trillion and 112 billion from $1 trillion and 145 billion in 2013, the lowest since 2009.

Zhang Monan found that the outbreak of economic crisis in the periphery of the world is closely related to the fluctuating cycle of US dollar liquidity.

For example, when the US dollar strengthened during the 1979-1985 years, the Latin American debt crisis broke out; during the 1995-2002 year strong dollar, it triggered the Asian financial crisis in 1997; the Russian financial crisis in 1998; the Brazil financial crisis in 1999; and the Argentina financial crisis in 2001.

Since the breakup of the Bretton Woods system, the appreciation of the dollar has caused the emerging markets to be hit hard by the financial crisis.

Will there be an accident this time?

When Zhang Monan expects the Federal Reserve's quantitative easing policy to exit, countries with high economic and financial vulnerability will bear the brunt.

"The future global market is likely to face greater volatility, mainly due to different policies adopted by different countries."

President Lawrence Fink, chief executive officer and co-founder Laurence D. Fink told the economic observer.

Lawrence Fink believes that the US dollar will continue to strengthen, but it will not be as strong as many people have guessed.

The uncertainty of the global economic environment or the Federal Reserve is more passive in the process of normalizing interest rates. He expects the US Federal Reserve and the European Central Bank to probably take the four round of quantitative easing policy, and Japan may adopt similar radical measures.

Now, "RMB expectations are not exactly the same. It is not clear enough to start with more market factors.

We tell investors the same way.

A bank foreign exchange salesman said.