(Economic Observation) Risks need to be guarded behind the renminbi's soaring 3,000 basis points in three months
China News Service, Beijing, September 2 (Reporter Xia Bin) The "rising" sound keeps coming!
The recent appreciation of the RMB exchange rate has been fierce.
The China Foreign Exchange Trading Center reported on the 2nd that the central parity of the RMB against the US dollar was 6.8376, an increase of 122 basis points from the previous trading day. So far, the central parity of the RMB has risen for seven consecutive trading days and hit the highest level since May 14, 2019 value.
From a long-term perspective, the current central parity rate of RMB has increased by 2940 basis points from the last trading day in May this year; as of 12:00 on the 2nd, the spot exchange rates of onshore and offshore RMB against the US dollar have also gained in the past three months. A gain of about 3,000 basis points.
On the other hand, the US dollar index fell to 91.76 in the trading day, compared with the highest in March of 103, a drop of nearly 11%, setting a new low in nearly 28 months.
China's economy took the lead in the world to recover, the attractiveness of renminbi assets, and the continued weakening of the U.S. dollar have contributed to this surge in the renminbi exchange rate.
"The current performance of the renminbi exchange rate is basically in line with expectations." Wang Youxin, a researcher at the Bank of China Research Institute, told a reporter from China News Agency that the domestic epidemic has basically been brought under control while the global monetary easing is "draft" and the international epidemic situation is still severe. The resumption of work and production has accelerated, economic growth momentum has gradually strengthened, economic indicators such as consumption, investment, and production have continued to improve, and endogenous growth momentum has increased.
At the same time, China continues to expand its financial opening, monetary policy remains relatively stable, and the domestic business environment continues to optimize. Driven by this, global cross-border capital pays more attention to the hedging properties and investment returns of RMB assets, and cross-border capital inflows increase , Driving the RMB exchange rate to strengthen.
Lian Ping, chief economist and dean of the Institute of Zhixin Investment, pointed out that the recent appreciation of the renminbi has its own reasons for the Chinese economy, but the main reason is probably the weakening of the dollar.
Wang Youxin said that the Federal Reserve has taken unprecedented easing measures and has recently adjusted its monetary policy operating framework to give more tolerance to inflation and pay more attention to employment support, which means that it will maintain easing for a long time in the future.
Affected by this, the U.S. dollar index has been falling continuously recently, and it has hit the low of the "91" range, which has promoted the passive appreciation of the renminbi.
Will this round of strong rise pull the RMB exchange rate into an appreciation channel?
"On the whole, we believe that the strengthening of the RMB exchange rate may continue. However, considering the possible subsequent risks, including global risk aversion, Sino-US relations, and asymmetric capital controls, the RMB exchange rate may show a slower slope. Appreciation trend, the short-term RMB exchange rate range may be 6.7 to 6.8." CITIC Securities analysts said clearly.
As far as the exchange rate is concerned, too fast appreciation is the same as too fast depreciation, and both need to guard against risks.
Liu Ligang, managing director of Citibank’s research department and chief China economist, bluntly said in an interview with a reporter from China News Agency that the global external monetary policy environment has returned to the situation from 2008 to 2009. Currently, the Federal Reserve has implemented zero interest rates and launched quantitative easing. The intensity has exceeded the level of more than ten years ago, and the world is in a situation of overflowing currency environment liquidity.
In this context, there will be pressure for further appreciation of the renminbi for a period of time in the future, and now it is more convenient for foreign capital to allocate assets in China’s capital market. Without corresponding hedging, the renminbi will appreciate very quickly, and a large inflow of capital will also cause Further asset bubbles climbed.
Clearly reminded that, in the context of the continued promotion of the Sino-US trade agreement, the strengthening of the RMB exchange rate is conducive to the implementation of the first phase of the agreement, but at the same time, we should also pay attention to the impact of continued exchange rate appreciation on exports and manufacturing.
Tan Yaling, an independent economist at the China Institute of Foreign Exchange Investment, previously wrote that there are three risks that are worth noting in the current appreciation of the RMB.
One is not to take the risk of inflation lightly; the second is to be wary of fiscal deficits to restrict the function of money; the third is to be wary of spreads to hedge arbitrage and loss of assets.
She specifically pointed out that China must be wary of bubbles in the process of changing fiscal surplus to deficit, and currency devaluation to appreciation.
China's bond and securities markets are attractive for investment, but we must be alert to the loss of assets caused by speculation and arbitrage.
The rhythm of RMB appreciation and depreciation is mainly led by external offshore companies. In the future, it will inevitably increase its own profits and reduce our income. We must be alert to the loss of assets caused by hedging arbitrage.
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