The central bank once again "raise standards" to curb excessive appreciation. What factors promote the appreciation of the renminbi?
The rapid appreciation of the renminbi has attracted great attention from financial management departments.
On December 9, the People's Bank of China decided to increase the foreign exchange deposit reserve ratio of financial institutions by 2 percentage points from December 15, 2021, which means that the foreign exchange deposit reserve ratio will be increased from the current 7% to 9%.
Recently, the appreciation of the renminbi has gained momentum.
On December 8, the onshore and offshore renminbi both strengthened, approaching the 6.35 mark, and even broke through the May high of this year.
As soon as the news of raising the foreign exchange deposit reserve ratio of financial institutions came out, the onshore and offshore RMB exchange rates plummeted.
The foreign exchange deposit reserve refers to the deposits of the People's Bank of China that financial institutions deposit a certain percentage of their foreign exchange deposits in accordance with regulations.
Among them, U.S. dollar and Hong Kong dollar deposits are calculated based on the original currency, and foreign exchange deposits in other currencies are converted into U.S. dollars for deposit.
The foreign exchange deposit reserve ratio refers to the ratio of the foreign exchange deposit reserve deposited by a financial institution to the central bank and the foreign exchange deposit it absorbs.
"The central bank raised the foreign exchange deposit reserve ratio from 7% to 9%, which is equivalent to tightening the supply and liquidity of the U.S. dollar in the foreign exchange market, thereby reducing the pressure on the appreciation of the renminbi and helping the renminbi exchange rate to maintain a reasonable equilibrium level against the U.S. dollar. Basically stable." said Wen Bin, chief researcher of China Minsheng Bank.
In recent times, the appreciation of the renminbi has been strong and the US dollar index has continued to rise. Generally speaking, the US dollar index and the offshore renminbi exchange rate trend are just opposite, that is, the US dollar index rises, the offshore RMB exchange rate falls, or the US dollar index falls, and the offshore RMB exchange rate rise.
"However, since the beginning of this year, as the Fed's monetary policy has shifted to expectations and increased its bond purchases, the U.S. dollar index has continued to rise. The renminbi has not fallen against the U.S. dollar, but has also shown an appreciation trend." Wen Bin analyzed that the main reasons for promoting the appreciation of the renminbi There are several factors. First, my country’s epidemic prevention and control has achieved remarkable results, taking the lead in resuming work and production, and the industrial chain supply chain has remained stable; second, China’s economy has continued to stabilize and rebound, and the basic economic orientation is also a prerequisite and basis for the appreciation of the renminbi; third, exports The situation is improving, and the trade surplus has reached a new high, supporting the RMB exchange rate. In addition, foreign direct investment has maintained a continuous inflow trend. Under the capital account, overseas funds are optimistic about China's capital market.
The foreign exchange deposit reserve ratio is one of the methods used by the central bank to cope with the appreciation of the RMB exchange rate.
In June this year, in order to strengthen the management of foreign exchange liquidity of financial institutions, the central bank raised the foreign exchange deposit reserve ratio of financial institutions by 2 percentage points from June 15th, that is, the foreign exchange deposit reserve ratio increased from 5% to 7%.
At that time, the inflow of foreign exchange funds increased and the RMB exchange rate appreciated significantly, which deviated from the fundamentals to a certain extent.
Earlier, the central bank raised the foreign exchange deposit reserve ratio from 4% to 5% in 2007.
Since December, the appreciation of the renminbi has become the background of this adjustment.
On December 8, the onshore and offshore renminbi both strengthened during intraday trading, approaching the 6.35 mark, and even broke through the May high this year.
Wen Bin believes that in the short term, the expected rapid unilateral appreciation of the renminbi is likely to have some impact on the economy and the enterprise level, especially for small and medium-sized export enterprises. The appreciation of the renminbi will bring exchange losses and decline in export competitiveness.
Judging from the current foreign exchange market, the People's Bank of China has taken timely policy measures to increase the foreign exchange deposit reserve ratio, which can keep the RMB against the US dollar basically stable at a reasonable and balanced level.
In the future, two-way fluctuations in the RMB exchange rate will be the norm.
The recent eighth working conference of the national foreign exchange market self-discipline mechanism clearly stated that the RMB exchange rate may appreciate or depreciate in the future. Two-way fluctuations are the norm, reasonable equilibrium is the goal, and the degree of deviation is proportional to the correction force.
Author: Du Chuan