China'S Foreign Exchange Reserves Can Cope With The Fed'S Interest Rate Increase.

The Fed announced that it raised the federal funds rate by 25 basis points to 0.25% to 0.5%, which is the first time the Federal Reserve has raised interest rates since June 2006.

After the end of the last monetary policy meeting this year, the Fed said in a statement that the US employment market has improved significantly this year, and there is reason to believe that inflation will move towards the medium-term goal of 2%.

Taking into account the economic outlook and the economic situation that takes time to digest existing policies and other factors, the Fed has decided to start raising interest rates.

Fed officials' anticipation of the future interest rate path "dot map" shows that interest rates may reach 1.375% by the end of 2016.

This means that the Fed could raise interest rates four times next year if calculated at 25 basis points per raise.

The reduction of foreign exchange reserves caused by the external reserve decline, resulting in relatively tight market funds, the central bank should reduce the accuracy of the drop, and must not take interest rate reduction measures.

In addition, we should guard against the Fed's interest rate increase in the stock market with the logic of "raising interest rates in the Federal Reserve - the depreciation of emerging market currencies - capital flight - liquidity shortage - a liquidity crisis in the stock market".

But after the Federal Reserve raised interest rate boots, the US stocks did not fall.

The S & P 500 index closed up 1.5%, the Dow Jones index closed up 1.4%, and the NASDAQ index rose 1.5%.

Before the announcement of the Fed's policy decision, the FTSE 300 index rose 0.3%.

After the dollar rose, it fell again and fell below the 98 barrier.

In addition to the continued decline in oil prices, non-ferrous metals, including gold, have risen slightly in the bulk commodity market.

How to explain the reaction of the market to the Fed's interest rate increase? The main reason for the rise of US stocks is that the US and European stocks have already digested the Fed's interest rate hike in advance.

The most important thing is that the Fed's rate hike is a sign that the US economy is improving. A "universal employment" scenario is showing in the US, and prices are controlled within the Fed's target.

The economic recovery has increased rapidly, the unemployment rate has dropped to a lower level in history and the inflation rate is moderate.

The dollar index fell mainly in the early stage of rising too fast, I believe that after a short fall will continue to rise.

Looking at the current situation, the Fed's biggest interest rate increase is in emerging markets.

The reason is very simple. When the Federal Reserve loosely released the money and implemented ultra-low interest rates, it was affected by the depreciation of the US dollar.

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Now that the interest rate rises, there must be a reverse flow of capital.

This is likely to pierce the emerging market economy, the financial investment bubble, and trigger financial risks.

There are at least two major impacts from the Fed's increase in boots to China: first, the depreciation rate of the renminbi.

After the United States raised interest rates, the offshore renminbi first fell back to 6.5186 against the US dollar, then quickly rebounded to 6.5370.

The low price of RMB in offshore market reflects the influence factors of the Fed's interest rate increase.

The two is capital outflow.

The sharp decline in foreign exchange reserves and foreign exchange holdings in November is the best indication.

The balance of foreign exchange reserves in November dropped to 34383 billion US dollars, down 87 billion 200 million US dollars compared with October, the lowest since the end of 1 in 2013.

Nevertheless, there is no need to worry or worry too much.

China has the base and capital to deal with the Fed's increase in interest rates.

The biggest capital is China's foreign exchange reserves of 3 trillion and 400 billion US dollars, which can cope with the fluctuation of capital outflow on any scale caused by the Fed's interest rate hike.

At the same time, China is still a favorable balance of trade, and the foundation of its external reserves is very strong.

Moreover, China's ability to control foreign exchange is very strong.

China's economic growth rate is still high enough to cope with external shocks.

However, we must prevent a vicious circle.

Foreign reserves and large capitals indicate that capital flight accelerates and then leads to currency depreciation. Currency devaluation will lead to a sharp decline in foreign reserves.

At the same time, the central bank's selling dollar intervention rate will also lead to a decline in foreign reserves, which is a vicious circle.

Just imagine.

The central bank sells dollars to intervene in the market, businesses and individuals to buy foreign exchange to hold foreign exchange, and non dollar assets shrink. These four factors stack up.

China

Perhaps there has been a real test.

The fundamental measure to retain capital is to stabilize China's economy as soon as possible and create an open, inclusive, relaxed environment and good faith legal system.

The central bank should try not to interfere in distorting prices in operation, but should let the pressure of depreciation be fully released.

Only in this way can market trajectories be followed, or can the renminbi fluctuate in real terms to achieve equilibrium.