Face-to-face in China's focus: RMB appreciation against the U.S. dollar by 10% a year, is it negative or positive for the economy?

(China Focus Face to Face) A 10% appreciation of the renminbi against the U.S. dollar in one year is negative or positive for the economy? 　　China News Service, Beijing, July 19th. Question: Is the RMB appreciates 10% against the US dollar in one year, is it bad for the economy or good for it? ——Interview with Guan Tao, Global Chief Economist of Bank of China Securities and former Director of the

(China Focus Face to Face) A 10% appreciation of the renminbi against the U.S. dollar in one year is negative or positive for the economy?

　　China News Service, Beijing, July 19th. Question: Is the RMB appreciates 10% against the US dollar in one year, is it bad for the economy or good for it?

——Interview with Guan Tao, Global Chief Economist of Bank of China Securities and former Director of the Balance of Payments Department of the State Administration of Foreign Exchange

　　China News Agency reporter Xia Bin

　　Since 2021, the RMB exchange rate against the US dollar has fluctuated significantly in both directions. It has experienced a decline and also experienced a rapid rise.

Recently, the central bank and other departments and agencies have intensively expressed their views on the RMB exchange rate, which has aroused attention from the outside world.

　　From June last year to the present, the RMB has appreciated by about 10% against the US dollar. Is this bad or good for the economy?

Guan Tao, Global Chief Economist of Bank of China Securities and former Director of the International Balance of Payments Department of the State Administration of Foreign Exchange, accepted an exclusive interview with China News Agency "China Focus Face-to-face" to give an authoritative interpretation.

Photo by China News Agency reporter Jia Tianyong

What are the signs of the official intensive statement?

China News Agency reporter: The RMB exchange rate began to fluctuate and appreciate after entering the second quarter of this year.

What factors do you think contributed to the previous round of RMB appreciation?

What is the reason for the recent slight depreciation of the RMB?

Guan Tao: The

RMB exchange rate in the first half of the year was a W-shaped trend.

The current formation mechanism of the RMB exchange rate implies that the US dollar is strong and the RMB is weak, while the US dollar is weak and the RMB is strong.

　　Entering April, the 10-year U.S. Treasury yield began to fall sharply, the U.S. dollar rushed higher, and the U.S. dollar depreciated in April and May. Therefore, at the end of May, there was a surge in the renminbi market. , A new high in the past three years.

　　However, after June, the US dollar rebounded again. At the end of June and early July (the US dollar index) rebounded above 92. The US dollar was strong and the RMB was weak. Since June, the RMB exchange rate has undergone a wave of correction and entered the 6.4 era.

　　Of course, we have also noticed that during the rapid rise in the RMB exchange rate between the end of May and the beginning of June, relevant domestic parties have strengthened the management of exchange rate expectations, which has also played a certain role in stabilizing the exchange rate.

　　So first of all, it is market reasons, and then some policies have been regulated.

However, the policy is temporary. The recent correction of the RMB against the US dollar mainly reflects the strengthening of the US dollar index.

Reporter from China News Service: Not long ago, Chinese officials have intensively expressed their views on the RMB exchange rate issue. Which important statements do you think are particularly worthy of attention?

What do these key signals mean to the market and enterprises?

Guan Tao: The

first is to emphasize the unchanged policy of maintaining the basic stability of the RMB exchange rate at a reasonable and equilibrium level; the second is to emphasize the unchanged managed floating exchange rate system based on market supply and demand; the third is to clarify that it will not Use exchange rate appreciation and devaluation as a tool, neither devaluation to stimulate exports, nor use appreciation to hedge imported inflation; the fourth is to tell everyone that exchange rate fluctuations are inevitable from a short-term or medium- to long-term perspective. Inevitability is inevitable.

　　I think this information can be summarized in two aspects of the market signal effect.

The first one is market education. By guiding the market to establish a correct sense of risk to avoid chasing ups and downs, telling you that the exchange rate is unpredictable, because the foreign exchange market is an efficient market.

　　On the other hand, through intensive voices, it also serves as a warning to the market, telling everyone not to bet on the exchange rate, unilaterally betting on the appreciation of the exchange rate, and to warn against malicious manipulation of the market or malicious creation of unilateral expectations.

Photo by China News Agency reporter Jia Tianyong

Is the rapid appreciation of the RMB bad or good?

Reporter from China News Service: There is a view from the outside world that the previous appreciation of the renminbi can cope with rising commodity prices and alleviate imported inflationary pressures. What do you think of this?

Is the rapid appreciation of the renminbi bad or good for the market?

Guan Tao:

We must give full play to the role of the exchange rate as an automatic stabilizer for the balance of international payments and macroeconomic stability. The exchange rate will rise or fall. Whether it is appreciation or depreciation, it will definitely have a certain impact on economic operations.

　　From June last year to the present, the renminbi has risen by about 10% against the US dollar. This will definitely have a certain effect on reducing import costs, especially the import costs of raw materials. In this sense, it is conducive to reducing imported inflation. Pressure, but on the contrary, is not good for exports.

　　Our export companies set the price from receiving the order, then to the production and delivery, and then to the receipt of foreign exchange. In the past, it may be able to complete such a process in about 3 months. This means that the longest export exchange rate exposure at that time was 3 Months, now because of the epidemic, it may take 4 or 5 months.

　　Since June last year, the renminbi has been on the whole continuous unilateral appreciation, which means that the longer the time window, the greater the exposure to exchange rate risk, which will have a great impact on companies.

　　I have made calculations. From October last year to February this year, for 5 consecutive months, the yuan has appreciated by more than 4% every five months. Many companies’ export profits are not that high, especially small businesses. .

This is an important reason why the country now attaches great importance to maintaining the stability of the RMB exchange rate.

　　Of course, this depends not only on the government's measures, but also on the self-help of enterprises. We need to improve our pricing power and core competitiveness, but we must adopt a package of measures, because many measures are structural measures, which are slow variables. .

China News Agency reporter: China is now entering a new stage of development, and it also emphasizes the smooth domestic and international dual cycle. What do you think is the impact of such an objective environment and major political parties on the RMB exchange rate trend?

Guan Tao:

I personally think that this issue should be regarded as a system neutral. It does not determine whether the renminbi will appreciate or depreciate. It needs to be analyzed in detail.

　　For example, we take the domestic cycle as the main body, which has advantages and disadvantages for the renminbi.

From a negative point of view, the big domestic cycle is to expand domestic demand, which means increasing imports, and increasing imports will reduce the trade surplus.

Given that other conditions remain unchanged, it is bad for the RMB.

　　But the problem is that if domestic demand can really drive better economic growth, especially through innovation and development to drive China’s economic growth, then if our labor productivity and technology advance faster than others, it will be more positive for the renminbi, so we need to be specific. analysis.

Photo by China News Agency reporter Jia Tianyong

The current exchange rate system suits China's national conditions

China News Service: We know that on the one hand, the central bank emphasizes that the RMB exchange rate is determined by the market. On the other hand, China now implements a managed floating exchange rate system.

From your research, how should we view the current RMB exchange rate mechanism?

Guan Tao: The

broad exchange rate choice actually includes two levels. One level is institutional arrangements, that is, fixed exchange rates, floating exchange rates, and managed floating. This is called institutional arrangements, and the system is relatively stable.

There is also an exchange rate policy. Under the same exchange rate system, there can also be different exchange rate policies.

　　From a practical point of view, a managed floating exchange rate system is an arrangement suitable for China's national conditions.

The most prominent manifestation is that we have endured various extreme events since the establishment of the current exchange rate system in 1994.

　　Therefore, the renminbi can rise or fall, and this two-way fluctuation has become a shock absorber that absorbs internal and external shocks.

Precisely because the exchange rate fluctuates, it helps to release market pressure in a timely manner and avoid the accumulation of expectations.

What is the general direction of the reform of the exchange rate mechanism?

China News Agency reporter: In the future, what is the general direction of the reform of the exchange rate mechanism?

In the process of reforming the exchange rate mechanism, what problems should we pay attention to and what risks should we guard against?

Guan Tao:

The direction of market reform is to allow the market to play an increasingly important role in the formation of exchange rates.

　　The exchange rate marketization reform itself is a trinity reform. We generally understand that exchange rate marketization includes how the central exchange rate is formed and whether the exchange rate floating range needs to be adjusted or even cancelled. In fact, this is only part of the exchange rate reform, and it has two aspects.

　　One is to develop the foreign exchange market. Only a deep and broad foreign exchange market and a liquid foreign exchange market can better play the role of the market in allocating foreign exchange resources and better play the role of risk detection and risk avoidance.

　　The other is to straighten out the relationship between foreign exchange supply and demand, and gradually reduce administrative intervention in foreign exchange income and expenditure.

Our administrative intervention in foreign exchange revenue and expenditure activities will inevitably bring about market distortions, and a distorted market will inevitably bring about distorted prices.

Regulators now emphasize that accounts should be opened in an orderly manner in both directions, with inflows and outflows open.

　　In addition to the foreign exchange reform itself, there are other reforms. For example, with the establishment of a modern monetary policy framework, the central bank no longer uses the channel of foreign exchange to transfer the base currency.

From China’s experience, we have always been deeply aware that only a healthy economic and financial system can enjoy the benefits of exchange rate fluctuations.

　　There is also the construction of a modern corporate system, that is, companies can respond to price signals normally, and cannot chase the rise and fall. They must have a calm mind on the inflow and outflow of capital. No one tells you that the appreciation of the RMB must be a good thing, or The devaluation of the renminbi must be a bad thing.

　　In addition, we need to change the economic development mode. According to new development concepts, such as innovation-driven, in the future, our imports and exports will rely more on added value rather than on price competitiveness. Its ability to withstand exchange rate fluctuations will be stronger. If the exchange rate appreciates, we may pass on the cost of appreciation through our bargaining power.

　　So this is a package of reforms. On the one hand, the reform of foreign exchange itself is a trinity. On the other hand, other reforms will definitely promote or restrict the reform of the RMB exchange rate formation mechanism.

Photo by China News Agency reporter Jia Tianyong

The renminbi is becoming more and more characteristic of a mature currency

China News Agency reporter: How do you judge the future trend of the RMB exchange rate?

You mentioned earlier that the renminbi has become increasingly characteristic of a mature currency. Why did you give such an evaluation?

Guan Tao:

I say that the renminbi is becoming more and more mature currency, which is a non-linear random walk.

　　There are many factors that affect the exchange rate. These factors are sometimes dominated by appreciation factors, and sometimes dominated by devaluation factors. These influences go down and increase. If they rise, they will fall, and if they fall, they will rise.

　　When many people study exchange rate issues, they use fundamentals to infer that China’s economy is stable and positive, and the renminbi will appreciate, including recently some people have suggested that the renminbi will appreciate in the medium and long term. An important reason is that according to the “tenth” The four-five-year plan put forward a series of strategic deployments to achieve high-quality development, and the renminbi will appreciate.

　　But in fact, there are multiple equilibriums in the foreign exchange market, that is, given the fundamentals, it is not possible to simply linearly determine whether the renminbi will appreciate or depreciate.

　　I do believe in a concept that the economy is strong and currency is strong.

This is proven by historical experience. For example, with the rise of the Japanese and German economies after World War II, the Deutsche mark and the yen have appreciated in value over a long period of time.

　　After the exchange rate unification in 1994, the RMB can appreciate for a relatively long time, and it is also a strong economy and a strong currency.

From 1994 to 2014, China's average annual economic growth was about 10%, and all those who short the renminbi returned without success.

　　In the medium and long term, if we follow the 14th Five-Year Plan and the 2035 long-term goal to achieve a high level of opening to the outside world, achieve high-quality development, and a strong economy and a strong currency, the renminbi will definitely have potential, but from this shore to the other side, this There must be a process, during which there are many uncertainties, which may be both positive and negative for the RMB exchange rate.

　　Rather than talk about the new cycle of appreciation, it is better to adapt to the new normal of volatility. We must not use unilateral thinking to view exchange rate trends.

The more market-oriented we are, the more the exchange rate presents a non-linear random walk characteristic of this mature currency.

(Finish)

Face-to-face in China's focus: RMB appreciation against the U.S. dollar by 10% a year, is it negative or positive for the economy?

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