Foreign Exchange: RMB Depreciation Is The Return To Fundamentals.

Recently, the people's Bank of China announced that it would improve the quotation mechanism of the RMB exchange rate with the US dollar, and the RMB exchange rate fluctuated sharply. Some overseas public opinion blamed the recent financial turmoil in the surrounding countries on the devaluation of the RMB.

In this regard, the chief economist of the ADB, Wei Shang, issued a special point of view to refute the relevant false statements.

Since mid August, there has been a new round of turmoil in the financial markets of Southeast Asian countries. Some people are worried about the possible arrival of a new Asian financial [-0.95%] crisis, and blame the depreciation of the renminbi.

In fact, the general analysis of international public opinion is that the core cause of financial turmoil is the strong US dollar and the Fed's interest rate hike.

In some Southeast Asian countries, currencies are pegged to the US dollar and global capital flows into Southeast Asia under the Federal Reserve's quantitative easing policy.

Reversal leads to currency depreciation.

In addition, the economic structure of these countries is relatively simple, and their external dependence is high, which is vulnerable to external shocks.

The main reason for the slowdown in China's economic growth is the structural problems of the economy. Especially since 2008, China's labor force has decreased and real wages have increased, which has weakened the competitiveness of China's economy.

At the same time, the competitiveness of other developing countries has been enhanced.

The key to improving China's competitiveness is to steadily promote structural adjustment through systematic reform.

At present,

China has formed a regional intra industry chain of production with China as its production center.

According to IMF estimates, about 20% of the final value of processed goods exported by China is produced by other Asian countries.

As long as the RMB does not depreciate continuously, the short-term depreciation will promote China's exports, and at the same time, it will inevitably lead other Asian countries to export to China, but will have positive spillover effects on other Asian countries.

From 2005

Before this policy came out, the RMB had appreciated by 26%.

The overvaluation of RMB has weakened China's economic competitiveness and caused the economic slowdown.

The purpose of the reform is to adjust the exchange rate of the RMB exchange rate from the market exchange rate, so that the RMB exchange rate will return to the fundamentals.

Because of the appreciation of the renminbi over a long period of time, the sudden devaluation and overreaction of the market are understandable.

However, as the people's Bank's intervention policy and market sentiment recover, the RMB exchange rate will remain relatively stable.

Countries in which currencies enter the SDR basket are based on a market based exchange rate regime.

Therefore, in the future, China's exchange rate reform should adhere to the direction of marketization, enhance the two-way floating elasticity of RMB, make the formation mechanism of the intermediate price more pparent, and let the market play a decisive role.

At the same time, we must vigorously promote the construction of foreign exchange market, so that it has enough breadth, depth and liquidity.