Guan Tao: Foreign Exchange Reform Should Rely More On Market Pricing.

When the two sessions of "12th Five-Year" to "13th Five-Year" surfaced, the exchange rate reform as the core of financial reform, especially how to overcome obstacles, is attracting much attention.

Undoubtedly, the marketization of exchange rate is a very important topic throughout the 13th Five-Year economic development cycle.

During the "13th Five-Year" period, exchange rate reform is expected to accelerate, and prices will play a bigger role in the allocation of market resources.

The "8.11" exchange rate reform and the exchange rate adjustment at the beginning of this year triggered global financial market volatility.

Since the exchange rate is becoming more and more market-oriented, the trend of exchange rate is becoming more and more difficult to predict.

So, what kind of reform path does China need? How to achieve the goal of marketization mentioned in 13th Five-Year?

In this regard, the media interviewed Guan Tao, a senior researcher and academic member of China's financial forty person forum.

As early as 1994, Guan Tao took part in the design of a series of major foreign exchange management system reform projects in China. He served as director of the balance of Payments Division of the State Administration of foreign exchange, and he was engaged in currency convertibility for a long time.

Research on exchange rate policy and international capital flow.

Media: now, what stage or degree has RMB exchange rate reform advanced to?

Guan Tao: "8.11" exchange rate optimization to optimize the RMB exchange rate parity mechanism with the US dollar, raising the marketization level and benchmark position of the middle price, touches the core content of exchange rate reform, and goes out of the strange circle of "more control and less movement" of the RMB exchange rate for a long time, which opens a new prospect for improving the mechanism of RMB exchange rate marketization.

So far, the managed floating exchange rate system established on the basis of market supply and demand after the merger of the exchange rate in 1994 has basically been perfected.

Admittedly, there will be room for improvement in the future RMB exchange rate formation mechanism, such as expanding or even eliminating the volatility management in the inter-bank market, and further weakening the benchmark position of the central parity.

But a more crucial question is how to formulate and implement the RMB exchange rate policy under the framework of managed floating exchange rate system.

Theoretically speaking, the system is long-term and stable, and policy is short term and changeable.

Just like in the framework of inflation targeting monetary policy, monetary policy stance can be tight, neutral or loose. Exchange rate policy should also be flexible, changing from time to place, especially in the long run and institutionalization of short-term policies.

Media: what are the difficulties or challenges facing RMB exchange rate reform?

Guan Tao: at present, the reform of RMB exchange rate formation mechanism is still facing a dilemma: if we continue to emphasize that the market will play a role, the RMB exchange rate may fall further, stimulate capital outflow, and affect market confidence and financial stability; if we continue to stress the maintenance of exchange rate stability, then the marketization of exchange rate and the expansion of financial openness may be temporarily shelved. At the same time, the expectation of depreciation will linger, and the effect of capital control will continue to decrease, and foreign exchange reserves may be further consumed.

Therefore, President Zhou Xiaochuan said in an exclusive interview recently that the direction of marketization reform of the RMB exchange rate will remain unchanged, but we will pay attention to seize the opportunity and push forward with a window.

The main reasons for the current situation are internal and external shocks, the expectation of depreciation caused by fundamental factors and the pressure of capital outflow, as well as the amplification effect caused by the market parties' two-way fluctuations in exchange rate.

Taking effective measures to resolve the unilateral depreciation expectations of self strengthening and self actualization and alleviating the market impact caused by the concentrated purchase of foreign exchange are the key to consolidate and deepen the work of foreign exchange reform.

Media: at present, the RMB formation mechanism is priced more by reference to a basket of currencies, but has it really abandoned the pegging to the US dollar, including whether the intermediate price mechanism will gradually fade or even give up in the future?

Guan Tao: compared with the bilateral exchange rate index, it is a progress to assess the change of foreign currency value of a currency and multilateral exchange rate. It is an important pitional arrangement for the RMB exchange rate to become more flexible.

Judging from some recent explanations, the authorities are also trying to adjust the exchange rate trend with reference to a basket of currencies. At the same time, the regulation index system is being perfected continuously.

Of course, the main cross-border payment and currency settlement currencies are the US dollar. We cannot expect the market to immediately change the focus on the bilateral exchange rate between the RMB and the US dollar. This requires a process.

At the same time, in the process of gradual improvement of the monetary policy framework, the establishment of a new anchor which can replace the exchange rate anchor is not achieved overnight.

With the gradual improvement of the managed floating exchange rate system, if the management float is not announced in advance, the role of the intermediate price will gradually fade.

Especially in the case of free floating, the monetary authorities can still announce the exchange rate, for example, the Federal Reserve announces the closing price of US dollar against important currencies in New York market every day.

But this exchange rate is not the intermediate price, but the reference exchange rate. It is not a mandatory market, but a spontaneous generation of the market, not a guide to market pactions, but a reference for social financial accounting and academic research.

Media: how do you think of the three relations between foreign exchange reform, interest rate liberalization and capital account liberalization, including the relationship between foreign exchange reform and capital market?

Guan Tao: these three should be coordinated.

The degree of openness of capital account should be broadly matched with the degree of exchange rate marketization.

According to the three element paradox, if we choose to maintain the stability of exchange rate and the independence of monetary policy, the adjustment of capital flow management policy is indispensable.

If capital flows freely, and exchange rate regime or exchange rate policy is rigid, it will be vulnerable to currency attacks and capital flows.

The core of interest rate marketization is the pformation of monetary policy from quantitative regulation to price regulation, which helps to improve the efficiency of monetary policy pmission and increase the pparency of monetary policy. This is also the fundamental significance of safeguarding the independence of monetary policy.

Interest rate liberalization helps to build a yield curve, promote rational pricing of financial products, enrich financial hedging tools and reduce resource mismatch. This is an important infrastructure supporting exchange rate liberalization and capital account liberalization.

Media: the exchange rate of RMB against the US dollar has only risen or depreciated from a few years ago to the near future. It is likely to "only depreciate", including "increasing the two-way fluctuation of exchange rate".

In fact, in the context of marketization, exchange rate rises and falls are common, and there is no currency that will rise or fall.

The long term exchange rate unilateral trend is just the same as the "double surplus" or "double deficit" of the balance of payments.

RMB

The direction of mechanism reform is to let the market play an increasingly important role in the formation of exchange rate.

According to the law of value of market economy, value determines price and price fluctuate around value.

This means that, in the case of exchange rate marketization, on the one hand, the market exchange rate will fluctuate around the equilibrium exchange rate. On the other hand, the market exchange rate can not deviate from the equilibrium exchange rate too far, and rise or depreciate indefinitely.

The formation principle behind this is that the equilibrium exchange rate is only the theoretical value of the reasonable exchange rate level, and there is no universally recognized or unified standard or model.

As the exchange rate is becoming more and more market-oriented, because the market has different interpretations and anticipation for the equilibrium exchange rate, the market view can neither be unified nor unified.

And based on market expectations, there will be more and more normal fluctuations in the two way ups and downs.

Especially in the pition process of the old and new exchange rate management system, due to lack of reference frame, it is possible to aggravate the market turbulence or even overshoot during this period.

As the exchange rate becomes more and more market-oriented, the effectiveness of the foreign exchange market is improved, and the trend of exchange rate becomes more and more difficult to predict.

The main body of the market complies with the development of the two-way fluctuation of the RMB exchange rate. We should control the currency mismatch risk, make good use of the financial hedging tools, instead of replacing the corporate debt risk management with the overall national debt security, instead of using market judgment to replace the market operation, and do not decide whether to hedge by making money or spending money.

Media: next, what is the focus of foreign exchange reform? What are the steps to go through or to achieve the goal of marketization mentioned in 13th Five-Year?

Guan Tao: President Zhou Xiaochuan made an explicit interview in his recent interview that he hoped that considerable progress could be made in exchange rate reform during the "13th Five-Year" period. The direction is to rely more on market forces to decide prices and achieve a more flexible exchange rate.

The direction of RMB exchange rate reform is still: Based on market supply and demand, reference to a basket of currencies, the implementation of a managed floating exchange rate mechanism.

First of all, we should emphasize market supply and demand. Even if there is short-term speculative force in the market, we must respect the market.

In the reform of exchange rate formation mechanism, we will obviously strengthen the reference function of a basket of currencies, but not focus on one basket.

In the future, the mechanism of macroeconomic data's impact on exchange rate will be introduced.

Yi Gang vice president also earlier expressed the desire to achieve a clean floating of the RMB exchange rate in the future, that is, free floating.

In order to make the market play a decisive role in the formation of exchange rate, on the one hand, it needs the normal intervention of the central bank to basically withdraw from the foreign exchange market. On the other hand, it needs to gradually reduce administrative intervention in cross-border capital flows. On the other hand, we should vigorously develop the foreign exchange market and enrich the exchange rate hedging tools.

If we want to go to the clean and floating exchange rate, it is necessary to cancel the exchange rate floating interval management and the intermediate price mechanism arrangement.

Media: will the future exchange rate pay more attention to choosing the right time window?

Guan Tao: the best timing for foreign exchange reform is only an idealized state.

Because every period will have problems facing each period. The pros and cons of any policy choice may not be clear before.

Moreover, under normal circumstances, the external economic balance should be subordinated to the goal of internal balance. Exchange rate policy is generally a secondary macroeconomic policy, not necessarily in the priority areas of the government.

Therefore, it is preferable to deepen the reform in the future. We should weigh the pros and cons and respond to the plan on the basis of scenario analysis and stress testing.

If you want to be clear, push forward resolutely, prepare for the rainy day, anticipate the enemy first, see the recruit and dismantle the recruit, and advance and retreat.

The harmonization of means, tools and goals will increase the success of the exchange rate reform.