The dollar shortage is alleviating the pressure of RMB depreciation?

The central parity of RMB against the US dollar rose by 621 basis points in two days; analysis believes that China is expected to become a new global safe asset center

On April 8, the central parity of the RMB against the US dollar rose sharply by 456 basis points to 7.0483, a cumulative increase of 621 basis points for two days. The dollar shortage, known as the "secondary disaster" of the New Coronary Pneumonia epidemic, is gradually declining after more than half a month. Following the fall of the US dollar index on March 20, the VIX index, which reflects investor panic, also fell below 50 in recent days. At present, the dollar shortage is hard to say, but the pressure of RMB depreciation is easing.

According to data from the China Foreign Exchange Trading Center, the central parity of the RMB against the US dollar has increased by 621 basis points, from 7.1104 to 7.0483, on April 7 and 8. This increase has exceeded the round of increase from March 23 to March 30, when the central parity of RMB against the US dollar rose by 605 basis points in total.

Xie Yaxuan, chief macro analyst of China Merchants Securities, said that since the outbreak of the overseas epidemic on February 20, U.S. stocks have undergone significant adjustments; after March 10, U.S. stocks continued to fall, the epidemic continued to deteriorate, and expectations were not improved; on the other hand, U.S. debt yields The rate has risen, gold prices have also undergone dramatic adjustments, market indicators representing liquidity have deteriorated rapidly, and tight liquidity in the United States and abroad has spread across the world, causing violent shocks in global capital markets.

The "dollar shortage" broke out, and the imbalance between supply and demand pushed up the price of the dollar. According to Wind, the US dollar index rose all the way from below 95 on March 10, reaching a maximum of 102.99 on March 20, and then fell back. It fell to 98 on March 30. As of April 8, the US dollar index rebounded to 100 above.

Some market participants called the dollar shortage the "secondary disaster" of the epidemic. One of the victims is emerging markets, and they are facing pressure from currency devaluation and capital outflows. In March this year, China's foreign exchange reserves also declined.

Why is there a dollar shortage? According to Xie Yaxuan's analysis, the liquidity demand caused by the decline in the income of the US companies under the epidemic but the constant increase in expenditure has exacerbated the tightness of the bank's funds; and after the increase in volatility, the fund was forced to sell off some of its assets, further forming a negative cycle .

The Beijing News reporter noted that after the dollar index fell back on March 20, the VIX index, which reflects investor panic, recently fell below 50. On April 7th, Eastern Time closed, VIX reported 46.7. Earlier on February 20, the VIX index rose significantly from around 14 to a high of around 83.

Many market participants believe that the time when the liquidity of the US dollar is most tight has passed. CICC said that the current spread between China and the United States is still high. With the effective control of China's domestic epidemic and the gradual recovery of domestic demand, the "growth gap" between China and other economies may gradually expand from the second quarter. "May stay relatively high. Therefore, as the "dollar shortage" gradually eases, the exchange rate of RMB against the US dollar may appear to be under pressure from the fundamental support.

Although the scale of foreign reserves declined in March, many people in the industry said that China's foreign exchange reserves still have a stable foundation, the fundamentals of China's long-term economic growth have not changed, the domestic epidemic prevention and control situation has gradually improved, and the economy has been actively improving. The foreign exchange reserves formed support and further supported the RMB exchange rate. Some institutions expect the RMB to rebound to 6.9 against the US dollar in May.

However, Guan Tao, global chief economist at BOC Securities, reminded that the liquidity crisis in the United States has eased but has not been lifted. The pressure on the depreciation of the RMB exchange rate has eased but the depreciation expectations have risen.

■ Outlook

RMB assets are expected to become the new global safe asset center

"The real ultimate victim of the dollar shortage may be the US dollar." Zhou Hao, senior economist for Asia at Commerzbank said that behind the dollar shortage reflects the financial system's stress response when the crisis comes, but it will also allow more investment. Investors began to consider choosing a richer investment or debt structure to face the dollar shortage that may appear out of order at any time. To some extent, the emergence of the dollar shortage indicates the dependence of the world financial system on the dollar, but if such dependence is risky, the dependence will gradually fade out due to the need for risk aversion.

Liu Feng, chief economist of China Galaxy Securities, believes that behind this global financial turmoil is a serious lack of safe assets. After the global financial crisis in 2008, the global central bank was entangled by the market for a long period of time to lower the real interest rate, adopted a quantitative easing strategy, and carried out a large number of national debt purchases, which exacerbated the lack of safe assets. The Chinese market has certain advantages and space over other markets. It is hoped that through further reform and opening up, it will become a new global security asset center.

Will the RMB's international status be comparable to the Japanese yen and British pound in the next ten years?

On April 7th, Bank of China released the 2019 "International Paper on RMB Internationalization", showing that more than 80% of the domestic and foreign industrial and commercial enterprises interviewed believe that the international status of the RMB will be comparable to the Japanese yen and the British pound in the next ten years. This ratio has increased by three percentage points from the 2018 survey results, which is the fourth consecutive rise since 2016 and a new high since the first market survey in 2013.

Liu Feng said that steadily advancing the opening of capital projects requires real-time attention to the risk prevention of two-way opening of capital projects, distinguishing between normal foreign exchange demand and short-term speculative demand in the operation of the real economy, preventing short-term exchange rate fluctuations from being used by speculators, and preventing short-term private sector short-term External debt risk, and risk contagion in international capital markets.

Beijing News reporter Cheng Weimiao