RMB exchange rate should not rise too fast
Tu Yonghong
This round of RMB appreciation reflects the market’s confidence in China’s economic development. Micro entities should seize the opportunity of short-term capital inflows, expand imports, develop trade financing that matches the duration of these short-term funds, and expand the scale of consumption, production, and trade. At the same time, hedging periods and risk hedging should be done in the financial market to further consolidate the development of the real economy.
On January 4, 2021, the RMB exchange rate reached 6.48. Compared with 6.9681 on January 3, 2020, the RMB appreciated 7% against the U.S. dollar; compared with the annual highest exchange rate of 7.1316 on May 29, 2020, the RMB appreciated 9.1 against the U.S. dollar %.
The absolute value of RMB exchange rate fluctuations in a year exceeded 11%.
The reasons for the appreciation of the renminbi are more complicated. In addition to China's overall planning of epidemic prevention and control, economic and social development, rapid economic recovery, expanding trade surplus, and inflow of US dollar capital, there is also an important political factor, namely the US presidential election. The resulting social turmoil and division, international investors worry about the US political situation, promoted the outflow of some safe-haven funds.
As the RMB with the most stable currency value and the highest return on risk-free assets in the SDR currency basket, it is favored by these investors and has increased the international demand for RMB.
Therefore, we should be soberly aware that the recent appreciation of the renminbi is not all a reflection of foreign exchange supply and demand in the real economy, and a considerable part of it is the result of short-term risk aversion.
Due to the rush of hedging funds and the large scale, the herd effect is obvious, which easily triggers large fluctuations in the RMB exchange rate.
Therefore, it is necessary to attach great importance to its price transmission and chain reaction to financial markets such as currencies, bonds, and stock markets, and make financial risk management countermeasures in advance to avoid misjudgments and improper operations that may lead to large asset losses.
In 2021, the global economy will still be in a period of low growth, low trade, low interest rates, and low inflation, and the economic development of major countries will still rely on high debts, risks continue to accumulate, and my country's external economic environment will remain severe.
This year is a critical year for accelerating the construction of a new development pattern and realizing the "14th Five-Year Plan" plan. It is necessary to coordinate the domestic and international markets and two resources.
Maintaining the basic stability of the renminbi at the equilibrium level of international payments is the key to stabilizing foreign trade and investment.
At present, my country's current account surplus accounts for less than 2% of GDP, which is an internationally recognized equilibrium level. Therefore, the RMB exchange rate at this stage is moderate. Whether it rises or falls, it is not conducive to internal and external balanced development. Of course, it is not advisable to appreciate too fast or fluctuate sharply.
Regarding the RMB exchange rate, one should not pay too much attention to changes in the bilateral exchange rate of RMB against the US dollar, but should focus on changes in the exchange rate of the CFETS (China Foreign Exchange Trading Center) currency basket.
In fact, the China Foreign Exchange Trading Center has adjusted the weight of the CFETS currency basket three times in accordance with the changes in my country’s trading partners and trade patterns, promptly reflecting major changes such as ASEAN’s becoming my country’s largest trading partner and my country becoming the EU’s largest trading partner, and the shrinking trade volume between China and the United States Under the circumstances, reducing the weight of the US dollar and maintaining the CFETS exchange rate, which is a basket of currencies, is basically stable. This will undoubtedly provide the market with a benchmark for accurately assessing the value of the renminbi.
In recent years, China has focused on establishing an effective macro-prudential management system when promoting high-level opening up to the outside world. It has many practical tools in controlling and regulating capital flows, especially short-term capital flows, which can be guided in accordance with changes in financial markets and market laws. The behavior of enterprises and institutions.
On January 5, the central bank and the foreign exchange bureau jointly issued a document to increase the macro-prudential adjustment coefficient for domestic enterprises’ overseas loans from 0.3 to 0.5, sending a policy signal to the market to encourage capital outflows and balance the balance of payments, which is conducive to better guidance The market’s expectations of the RMB exchange rate should avoid major speculative shocks and excessive market price fluctuations, thereby holding the bottom line against systemic financial risks.
In short, this round of RMB appreciation reflects the market’s confidence in China’s economic development. Micro entities should seize the opportunity of short-term capital inflows, expand imports, develop trade financing matching these short-term capital periods, and expand the scale of consumption, production, and trade. At the same time, hedging periods and risk hedging should be done in the financial market to further consolidate the development of the real economy.
(The author is the deputy director of the Institute of International Monetary Studies, Renmin University of China)