Han Huishi: USD Determines RMB Exchange Rate, No Change in Policy

Han Huishi of China Construction Bank comments on this WSJ story: A Rare Look Inside China’s Central Bank Shows Slackening Resolve to Revamp Yuan. He doesn't think it's as big a revelation as it seems.

iFeng: 韩会师:央行遭遇逼宫 将放任人民币贬值?
First, the article mentions "economists and bankers claim China's central bank to stop and allow the devaluation of the Renminbi against the market", which is not to say that the theory and practice, particularly in the banking system of collective opposition to the current exchange rate policy? Is the central bank is facing tremendous pressure, it is likely to indulge devaluation?

Second, the "near central bankers," said, "January 4 the central bank abandoned the private market mechanism," What does that mean?

Third, "the central bank did not respond to the Information Services Department," Wall Street Journal "request for comment" mean the Bank of guilty, it does not respond.

Fourth, the recent devaluation of the renminbi against the US dollar stage, this report is not now thrown in for further devaluation do to prepare public opinion.

This "Wall Street Journal" reported from the content is completely paraphrased the content, not to mention what might stand newspaper itself, but "people close to the central bank," the statement doesn't come from a professional place. For questions raised above, I believe that to a large extent this reflects the current market is not familiar with the pricing mechanism of the RMB, so should not have any fears.
He lists why he isn't concerned:
First, the closed-door meeting is not a mystery.
People say lots of things in closed door meetings. Next, he goes on to blast the source as being "near to central bankers," a field so wide it is meaningless and unrelated, including even the janitor who cleans Zhou Xiaochuan's office.
Secondly, the "near central bankers' central bank and the two concepts are irrelevant.

Category "near central bankers" can be infinitely wide, he can be both tutor central bank officials may be central bankers reporters often interview can also be a People's Bank door armed police on duty, even responsible for cleaning Zhou Xiaochuan's office cleaning uncle, so this statement can not listen to people in general, because no one is responsible for these things, of course, can not be responsible for lip service.

Let us look at "close to the central bankers," the specific position, there are many problems.

The first question: the person said, "January 4, the central bank abandoned the private market mechanism." So January 4 exactly what happened?

January 4 is the first trading day of the new year, the day the yuan central parity reported 6.5032, compared with the 2015 closing price opened 96 basis points lower on the central parity devaluation led to the spot exchange rate, the yuan hit 6.5381 daily low, than 2015 closing price fell 445 basis points. Note, however, in December 2015 and January 2016, banks on foreign exchange settlement deficit (spot + forward) were as high as 965, and $ 88.3 billion, under so much pressure deficit, devaluation of the RMB against the US dollar seems to be "follow the market mechanism" rather than "abandon the market mechanism." So I am a bit confused, in the eyes of the person "market mechanism" is what that means.

The second question: the person said, "the central bank again back to the old way the yuan central parity adjusted according to the wishes of the authorities." This is clearly demeaning to members of the central bank and commercial banks.

Now every day making banks, RMB yuan central parity should be submitted to the central bank's reference price, the offer is based on "a basket of currencies" + "reference closing price" of double reference to the principle of central bank regulations. Meaning this person is obviously that the various market-making banks offer no use, according to the central bank free to develop their own ideas yuan central parity every day. But the reality is not the case, seems to be close to the central bank, the person said not only do the major city banks offer members say considered.

According to the author of the survey, a number of banks to the central bank central parity gap reference offer submitted and published by the central bank is not large, it seems to indicate the central parity of the central bank's offer is more transparent, rather than more secret operations. I do not know whether this person to do the city bank conducted the field survey. The author in the article which micro-channel many times more than 12 hours ahead of central bank estimated that the next day the central parity, at least six consecutive calculations, the author quotes and estimates the central bank to maintain parity on the final direction of change 100% agreement the gap between the specific point has been largely controlled in less than 30 basis points. This shows the central parity offer absolutely rule-based, not arbitrary racking our brains beat out.
He goes on to explain how the dollar is driving the USDCNY:
Take today's market data, for example, this afternoon, the yuan closed at 6.5567, if tonight the international market maintains the dollar's appreciation, the dollar index closing price to a level above 6.42 [DXY of 95.642?], then tomorrow, the People's Bank is likely to open central parity above 6.5600.

If tonight dollar index fell to about 95.2, and yesterday's closing price is about the same level, the central parity of the central bank is likely to start tomorrow in the vicinity of 6.5500 or slightly higher.

If the dollar index flattening out tonight, closing near 95.30. Tomorrow the central bank is likely to open in the vicinity of the central parity of 6.5550, plus or minus 20 basis points.

Simply put, as long as the dollar index fell tonight, tomorrow or the central parity approximation breakthrough 6.5500 is a high probability event, the spot exchange rate is a high probability event swinging around 6.55.
In conclusion, much ado about nothing:
"Wall Street Journal" reports should be true, but the sake of discussion participants, the paper quoted and "near central bankers," the statement was not a professional, there can be no possible objective. Just text various kinds of "person" in March the views expressed and the current devaluation of the RMB market is just more attractive market attention, so many of my friends to cause some trouble. If the central bank for the text with the Information Services Department of the suspect based on hearsay evidence to be able to respond, it is estimated that several ISD staff already died from overwork.

As I previously stated, according to the current pricing mechanism of the RMB, the yuan is the current trend can be expected, the depreciation of the market is a normal reaction in the dollar strong background, not to mention the central bank conspiracy. So even if tomorrow the central parity continues to depreciate, and even new lows, you do not feel strange.

A long time did not write such a long text, and tiring. I want to help an old friend.

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