ECB Crazy Printing Money Pressure?

Four days ago, the European Central Bank enlarged its bid and offered the banner of trillion QE, which has now spread to the renminbi.

Today, the yuan reached a eight month low against the US dollar, continuing its downward trend in the previous trading day, and the exchange rate on the shore and offshore RMB dropped sharply. The largest drop in the intraday market reached 1.94%, which was once close to the limit.

At the close, the US dollar / Renminbi inquiry system closed at 6.2548, an increase of 263 points compared with the previous trading day.

Will China's economic downturn and euro zone QE and US dollar strengthen the RMB's accelerated depreciation?

Since 2014, the RMB has ended its appreciation for many years and entered a round of depreciation market.

Last May, it recovered, but after the central bank announced its interest rate cut in November 21, 2014, the RMB depreciated rapidly and the depreciation trend continued.

The foreign exchange market is very calm.

Since last November, the currencies of emerging economies such as the euro, yen and BRICs have all depreciated to varying degrees, and the dollar has strengthened.

Last week, the major central banks of the world were collectively recruited: the ECB finally resorted to the trillion QE banner, which calculated that 1 trillion and 80 billion euros would be injected into the euro area economy in the next 18 months.

Other central banks also responded by cutting interest rates, and the US dollar rose strongly in this context, refreshing its 11 year high.

Under the background of the overall strength of the US dollar and the downward pressure on domestic economy, the devaluation pressure of the RMB has increased significantly this year.

Pan Gongsheng, vice president of the central bank, publicly stated that the new QE policy of the European Central Bank and the trend of the normalization of QE in the US will further push the US dollar exchange rate to strengthen, which may bring downward pressure on the RMB to the US dollar exchange rate.

What does RMB devaluation mean to China's economy? The exchange rate directly affects the employment and profit of large number of export enterprises in China. The depreciation of the RMB will help the surplus manufacturing output of China's overcapacity industries and benefit the export oriented industries.

On the other hand, overseas experience shows that every round of currency depreciation in emerging markets is accompanied by capital outflows and stock market pullbacks, and finance and real estate are often the most seriously injured industries.

The strong exchange rate of the US dollar will drive the capital back to the US. Due to the weakening of China's industrial investment return, the recovery of the economic situation will slow down and reduce the confidence of overseas investors, which will lead to a phased capital outflow.

There is also a view that this round of depreciation will help China's economic recovery.

Lu Zheng commissar, chief economist of Industrial Bank, believes that the current RMB effective exchange rate is not balanced, but has been overvalued. This is also the fundamental reason for the slow recovery of China's economy.

If the overvaluation of the renminbi is corrected, that is, the depreciation of the exchange rate will bring the Chinese economy back to the growth rate of more than 7.5%.

Market pairs

The future trend is obvious.

CICC believes that the renminbi will not depreciate in 2015, on the grounds that China is the world's largest exporter, and the share of China's exports continues to rise in the world at a time when the main global economic aggregate demand is weak.

The way to further enhance exports to support the domestic economy will increase the pressure of international trade friction.

On the contrary, Deutsche Bank released a report last week that three factors contributed to the continued devaluation of the renminbi. First, because of the poor fundamentals and the rising credit risk, the Chinese enterprises may repay or hedge against the huge dollar denominated debt in the context of the appreciation of the US dollar.

In the first quarter, the current account surplus tends to decline. Finally, the intervention of the Central Bank of China on the RMB exchange rate is relatively weakened, which means that market forces will become a major driving force.

However, if the RMB continues to depreciate, the planning of the free trade area, the internationalization of the RMB and the "one belt and one way" plan may be blocked. At the same time, the sharp fluctuation of exchange rate will inevitably lead to the aggravation of capital flows and will also affect the opening of capital account.

In addition, under such a large scale of trade surplus, the urgency of the central bank to stimulate exports is not large by devaluing the renminbi.

Judging from these points, the central bank will not stop interfering in the RMB. The depreciation rate of RMB will not be too large, and the dollar exchange rate will fluctuate in general.