The renminbi's share of global foreign exchange reserves steadily rises, the central parity of the exchange rate against the U.S. dollar hits a new high since June
Looking at the strong resilience of China's economy from the performance of the renminbi
Our reporter Chai Yaxin
On December 1, data released by the China Foreign Exchange Trading Center showed that the central parity of the RMB against the US dollar was reported at 6.3693, an increase of 101 basis points from the previous trading day, a record high since June.
At the same time, the share of renminbi in global foreign exchange reserves hit a new high since the fourth quarter of 2016.
The strong renminbi exchange rate continues to take place. What are the driving factors?
The resilience of the RMB exchange rate reflects the trend of economic development?
The reporter interviewed Xu Wei, deputy director of the Macroeconomic Research Department of the Development Research Center of the State Council, Zhang Xiaotao, dean of the School of International Economics and Trade of the Central University of Finance and Economics, and member of the Expert Committee of the China Council for the Promotion of International Trade.
The exchange rate is affected by factors such as economic fundamentals, trade competitiveness, asset valuation attractiveness and expectations. Economic fundamentals are the basic factors that explain exchange rate changes
Reporter: How do you view the recent performance of the RMB? What are the reasons behind it?
Xu Wei: The exchange rate is the ratio of the two currencies, which is affected by factors such as the economic fundamentals of the two countries, trade competitiveness, asset valuation attractiveness and expectations.
The RMB appreciated relatively quickly against the U.S. dollar last year, and has maintained a two-way fluctuation against the U.S. dollar this year at the level of 6.4.
On the whole, since the exchange rate reform in 2015, the RMB has withstood the tests of domestic stock and bond market fluctuations, the Sino-US trade war, and the new crown pneumonia epidemic. It has strong resilience and two-way fluctuations near the equilibrium level are more obvious.
Zhang Xiaotao: The RMB exchange rate system is a managed floating exchange rate system based on market supply and demand and adjusted with reference to a basket of currencies.
The RMB exchange rate is closely connected with import and export trade, inflation levels, domestic monetary policies, capital export and import, and the economic and monetary policies of major countries in the world. Changes in these factors will affect the foreign exchange rate through changes in foreign exchange supply and demand.
On the whole, the appreciation of the renminbi is relatively moderate, and the exchange rate of the renminbi against the US dollar remains stable and fluctuates within a reasonable range.
Economic fundamentals are the basic factors that explain exchange rate changes. The long-term trend of exchange rates is mainly determined and supported by economic fundamentals.
In the first three quarters of this year, under the strong leadership of the Party Central Committee with Comrade Xi Jinping at its core, my country has coordinated the overall domestic and international situation, the prevention and control of the epidemic, and economic and social development. The economy has continued to resume development, and foreign trade imports and exports have continued to maintain rapid growth and resilience. More sufficient and stable while improving quality.
The export situation is good, overseas long-term funds have increased their holdings of RMB assets in an orderly manner, and the RMB exchange rate has risen driven by market supply and demand.
This is what it means for market supply and demand to play a decisive role in the formation of exchange rates under a managed floating exchange rate system.
Since the beginning of this year, my country's international balance of payments surplus has been significant, which is a solid foundation for the relatively strong performance of the renminbi in the global non-US dollar currencies.
Specifically, the surplus in trade in goods has expanded, the deficit in trade in services has shrunk, and direct investment has shown a large surplus.
It can be said that even under the impact of economic and trade frictions and the new crown pneumonia epidemic, my country’s economy has shown strong resilience. The long-term stable growth trend remains unchanged, which has strengthened the confidence of foreign investment in China. At the same time, my country has continued to reduce market access restrictions and expand foreign countries. Vivid reflection of opening up and improving the business environment.
A stronger RMB exchange rate is conducive to reducing import costs, increasing household consumption, reducing energy and raw material costs that are partly dependent on the international market, and reducing imported inflationary pressures
Reporter: What impact will the renminbi exchange rate rise against the trend?
Zhang Xiaotao: The appreciation of the renminbi has different impacts on different industrial sectors of the Chinese economy. The impact on economic growth is comprehensive, and the overall positive effect is relatively large.
The traditional view is that currency depreciation is conducive to improving export competitiveness, stimulating aggregate demand, and thereby improving economic growth.
This transmission mechanism is more significant for economies that rely on exports.
However, the current round of currency appreciation has a relatively small inhibitory effect on exports. It must be understood in the context of current economic development, that is, the new characteristics of global supply and demand and the value chain supply chain under the influence of the epidemic.
In the short term, some countries and regions have strong rigid demand for China's imports, and China's exports are unlikely to be affected by the substitution effect of exchange rates in the short term.
Of course, the appreciation of the renminbi will inevitably have a negative impact on some industries, especially those with weak market competitiveness, single products, and extremely price sensitive industries.
At present, my country is gradually forming a new development pattern in which the domestic and international dual cycles are the mainstay and the domestic and international double cycles are mutually promoted. The appreciation of the RMB exchange rate can reduce import costs, help residents increase consumption and promote the economy, and also help reduce high energy sources and partial dependence on international sources. The cost of raw materials in the market reduces the cost of the entire industry chain and thus improves efficiency.
The appreciation of the renminbi will also help offset rising inflationary pressures.
Since the beginning of this year, the prices of various bulk resource products and basic products have risen, and the appreciation of the renminbi can reduce imported inflation to a certain extent and ease the overall level of inflation.
Xu Wei: The renminbi exchange rate is an "automatic regulator", which helps to alleviate external shocks, promote internal and external balance, and enhance the autonomy of monetary policy.
Compared with other major currencies, the relatively strong performance of the renminbi is conducive to alleviating imported inflation pressure.
Some of our country’s energy and raw materials are highly dependent on foreign sources. A stronger RMB exchange rate can reduce import costs, improve terms of trade, and ease supply shocks.
In the first three quarters of this year, the contribution rate of my country's net exports of goods and services to GDP growth reached 19.5%, which drove GDP growth by 1.9%, which was at a relatively high level in history.
The relative strength of the RMB exchange rate is also the need to promote the balanced development of domestic and foreign demand.
Reporter: Recently, the monetary policy of major developed economies has been adjusted, and the Fed has tightened monetary policy. How to view the impact of policy adjustments in advanced economies on my country? What is the significance of a stable monetary policy in our country?
Zhang Xiaotao: The Fed's contraction of monetary policy may lead to the outflow of funds from developing countries and into the US market.
This will have a major impact on developing countries.
The new crown pneumonia epidemic has severely affected various economic indicators in the United States, which in turn affected the direction of its monetary policy.
In the recently released report on the implementation of China's monetary policy for the third quarter of 2021, the central bank clearly pointed out that "the policy adjustments of advanced economies have limited impact on me."
First, my country’s current macroeconomic volume has expanded and its resilience has become stronger; second, my country has insisted on implementing normal monetary policies; third, my country’s exchange rate market reform has made progress, and its ability to absorb external shocks has increased; fourth, my country’s financial system has become more independent and more resilient. Stability is stronger, and the attractiveness of RMB assets has increased.
The central bank emphasizes that a prudent monetary policy must be flexible, precise, reasonable and appropriate, with me as the mainstay, stabilizing the word, grasp the strength and rhythm of the policy, handle the relationship between economic development and risk prevention, make cross-cyclical adjustments, and maintain the overall economic situation. Stable and strengthen the resilience of economic development.
Faced with the requirements of high-quality economic development, monetary policy should not pursue short-term stimulus effects. It needs to be prudent and appropriate, guide the market to form reasonable expectations, and pay attention to the combination of monetary policy and other policies.
Xu Wei: It is observed that the fiscal policy of major economies next year is expected to shift from crisis relief to recovery consolidation, the fiscal deficit rate will gradually return to normal levels, and the focus of fiscal expenditure will shift to recovery consolidation and medium- and long-term priorities.
The monetary policy shifted from substantial easing to an attempt to normalize.
At present, major emerging economies and some advanced economies have started to raise interest rates. Later in the United States, the Eurozone and Japan’s policy adjustments lag further behind.
my country’s economy is under pressure on both ends of the supply and demand. In this context, macroeconomic policies should be designed for cross-cycle and counter-cyclical adjustments, monetary policy should be stable, forward-looking, and pre-adjustment and fine-tuning will help prevent the decline in domestic demand and external input. The superposition of sexual risks will cause the economic growth rate to decline too fast, and avoid excessive stimulus and accumulate too much financial risk.
The currency of a sovereign country becoming an international currency is the result of the development of the country’s comprehensive strength. The renminbi’s share of global foreign reserves has steadily increased, indicating that the international acceptance of the renminbi has risen.
Reporter: According to data from the International Monetary Fund (IMF), in the first quarter of this year, the total RMB foreign exchange reserves rose from US$269.49 billion in the fourth quarter of last year to US$287.46 billion, an increase for 9 consecutive quarters. The renminbi's share of global foreign exchange reserves rose to 2.45%, a record high since the IMF reported the data in the fourth quarter of 2016. How do you view the steadily increasing proportion of the renminbi in global foreign reserves? What does the increased willingness of international investors to hold RMB?
Zhang Xiaotao: The international acceptance of a country’s currency will be affected by a series of factors such as the size and structure of the country’s economy, the depth of global and regional trade involvement, the breadth and depth of financial markets, the development of foreign investment, and the level of national policies and institutions. .
Since the beginning of the pilot renminbi settlement of cross-border trade in 2009, the internationalization of the renminbi has been advancing continuously and has entered a relatively rapid development stage in recent years.
From the perspective of the historical evolution law of the British pound, the U.S. dollar, etc., becoming an international currency, the currency of a sovereign country becoming an international currency is the result of the development of the country's comprehensive strength.
The growth of the economic scale does not necessarily create a powerful currency. Its widespread acceptance requires the country to build a sound social and economic system, and strive to become a world leader in technological innovation and a promoter of human civilization progress.
Only in this way can international investors trust the country’s currency and are willing to hold it. The country’s credit accumulated by the widespread use of the country’s currency will eventually make it an international currency.
In the process of the internationalization of a country's currency, technological innovation and system perfection are two "mountains" that must be crossed.
Xu Wei: The renminbi's share of global foreign reserves has steadily increased, indicating that the international acceptance of the renminbi has increased and the internationalization of the renminbi has been steadily advancing.
Sovereign currency is a specific symbol of national credit, and its international acceptance ultimately depends on comprehensive factors such as economic strength, policy stability, and capital market level.
my country's overall national strength has steadily improved, the development trend continues to improve, and the macroeconomic policy maintains continuity, stability and sustainability.
In response to the challenge of the epidemic, my country has not implemented the so-called "high pressure economics", and the rate of increase in macro leverage is lower than the global average. It continues to adhere to a normalized monetary policy, leaving enough policy space to deal with various risks and challenges in the future.
In addition, my country’s capital market development and openness have continued to improve, market depth, breadth, and liquidity have continued to improve, and the convenience of orderly flow of funds across borders has increased, which has also strengthened the confidence of international investors in holding RMB.
The performance of RMB's resilience reflects the strong resilience and huge potential of China's economy
Reporter: What is the trend of my country's economic development behind the strength of the RMB exchange rate?
Xu Wei: The trend of my country's economic development can be understood through the reasons behind the performance of the RMB's resilience.
First of all, my country's economy as a whole continues to recover momentum, and the fundamentals of long-term improvement remain unchanged.
Last year, my country's economy took the lead in recovering, and it was the only major economy in the world that achieved positive economic growth.
The latest World Economic Outlook released by the International Monetary Fund predicts that China’s GDP will grow by 8% this year, reflecting the international community’s optimistic view of China’s economic growth prospects, and also showing that China’s economy has strong resilience and huge potential.
my country’s epidemic prevention and control has achieved good results, fully leveraged the complete advantages of the industrial chain, rapid recovery of production capacity, and a good export situation.
In dollar terms, in the first 10 months of this year, my country’s total export value increased by 32.3% year-on-year, with a trade surplus of more than US$510 billion, and the scale of the surplus was the highest in the same period in history.
Correspondingly, corporate and personal foreign exchange deposits have grown rapidly, and the demand for foreign exchange settlement has increased. The net foreign exchange settlement and sale of banks was the highest in 2013.
Market players have full confidence in China's economic growth prospects, and foreign direct investment has maintained rapid growth.
In 2020, the total amount of global foreign direct investment (FDI) has fallen sharply, but China’s FDI has grown against the trend, surpassing the United States for the first time, becoming the world’s largest foreign investment destination.
This year, the scale of my country's utilization of foreign capital has further expanded. The actual utilization of foreign capital in the first 10 months exceeded US$142 billion, the highest in the same period in history.
Foreign investment is optimistic about RMB assets.
Compared with other major economies, my country implements a normalized monetary policy and maintains a certain level of spreads with major economies.
The reform and opening up of the capital market has achieved results, and global investors are more optimistic about RMB assets.
Financial risks are effectively controlled.
After a series of measures to reduce leverage, my country's current foreign debt risks are controllable and the overall debt repayment ability is relatively strong.
Reporter: How do you view the significance of high-level opening to the outside world for high-quality economic development and world economic stability?
Xu Wei: Judging from the development experience of the Chinese economy over the past 40 years, increasing the level of opening up is the source of vitality for expanding the external circulation and enhancing the internal circulation.
At present, my country's economy has entered a stage of high-quality development. The breadth and depth of reform and opening up continue to expand, and the complexity and arduousness have increased. It is necessary to further improve the level of opening up to achieve a higher level of "dual cycle."
Only by eliminating various institutional barriers, promoting the optimal allocation of land, labor, capital, technology, and data elements, improving the business environment, stimulating the potential of the ultra-large-scale domestic demand market, and continuously improving the degree of marketization, rule of law and internationalization, it is for Chinese companies Participating in global competition and providing a better institutional environment can deepen my country's participation in the global industrial chain and enhance its position in the global industrial chain.
In recent years, the global economic cycle has encountered obstacles such as "reverse globalization", the flow of some commodities, elements, and people has been restricted, and the uncertainty of corporate investment expectations has increased. The epidemic has also caused major disruptions to the global supply chain, but the global economy has become more The pace of high-level improvement has not stopped, and the scale and level of service trade, intermediate goods trade, digital trade, and regional integration continue to expand.
The construction of a unified domestic market in China is also in-depth, and the reform of factor marketization continues to deepen, and the barriers to factor flow and the entry threshold for enterprises are further reduced, laying a better foundation for a smooth "dual cycle".
Zhang Xiaotao: The world is undergoing major changes unseen in a century, and China's domestic and external economic environment has undergone major changes.
China is promoting a new round of high-level opening up and striving to build a high-level opening up pattern with richer levels, more diverse structures, and broader fields, which is of great significance to the high-quality economic development.
The Chinese market is accelerating the advancement of institutional opening. The Foreign Investment Law provides transparent, fair and predictable legal protection for foreign businessmen, which reflects China's firm determination and institutional self-confidence in opening up.
While fully implementing the pre-access national treatment plus negative list management system, we have further reduced the negative list for foreign investment access, integrating with the world in more and more areas, and implementing reform measures more efficiently.
China is undergoing a shift from a business environment with low factor costs and preferential policies to a reduction in institutional costs and a comprehensive optimization of the business environment.
In the past 40 years or so, the world has witnessed the transformation of the role of the largest developing country that was originally on the fringe of the global trade value chain into a powerful participant and system builder in international trade.
Standing at a new starting point, China's high-quality economic development will inevitably proceed under more open conditions. China will always be an important promoter of global openness, a stable source of power for world economic growth, and a large market for countries to expand business opportunities and vitality.