Experts: Yuan Depreciation Not a Bad Thing, Flashback: Reserve Depletion Not Alarmist

Chinese media has been relatively quiet on yuan depreciation until now, but talk is starting to pick up. Depreciation articles are out there, but not yet showing up as top articles in the finance section. Last time, there were top headlines asking things like "what happens to home prices if the yuan depreciates?"

The article below is meant to calm investors. The headline says: "experts say yuan depreciation is not a bad thing"

JRJ: 人民币贬值 专家称非坏事
And this decline can not help but remind people of the "811 exchange reform" in 2015, is the pressure of RMB depreciation coming again?

  "RMB exchange rate movements will be more complex and difficult to unilateral trend." Sun Lijian, vice president of economics at Fudan University to accept the " International Finance represents Times" reporter, said, "Now the dollar trend is not determined by economic fundamentals, It is dominated by the Fed’s monetary policy and trade policy, full of uncertainty.”

..."In fact, the strong dollar is an inevitable phenomenon when the Fed just announced interest rate hikes and the market expects to continue to raise interest rates in the future." Sun Lijian pointed out that "the recent economic fundamentals of the United States support the Fed 's decision to raise interest rates ."

...In the opinion of analysts, the strong performance of the US economy has become the driving force behind the strength of the US dollar. In fact, not only has the renminbi depreciated against the dollar, but almost all non-US currencies have fallen against the dollar.
Depreciation is not a bad thing

"The recent trend of the renminbi is in line with the overall trend of global non-US currency depreciation. A certain degree of devaluation of the renminbi will hedge the various adverse effects of trade friction on enterprises, and may also increase the value of non-US currencies against the US dollar in the future. Space is left behind. After all, trade friction often brings about the depreciation of the dollar.” Sun Lijian pointed out that “the central bank ’s RRR cuts on the one hand buffered the impact of de-leverage on the one hand and the exchange rate depreciation on the other. effect."

  Bank of China Wang Youxin, a foreign exchange researcher at the International Finance Research Institute, believes that the current round of RMB depreciation is mainly passive, caused by a strong rise in the US dollar index. The misalignment of the monetary policy cycle and the narrowing of the risk-free spread between China and the United States all contributed to the depreciation of the renminbi.

...Van Luu, head of Russell's foreign exchange and fixed income strategy, said that the dollar's rise since mid-April was a technical rebound, not a “structured bull market”. There are signs that the dollar rebound is losing momentum. We maintain a neutral attitude towards the dollar as a whole. In a recent research report , PIMCO's global strategist Gene Frieda pointed out that as other major central banks begin to catch up with the Fed in terms of interest rate normalization, the threat to global economic growth is contained and the dollar is unlikely to strengthen further.

  The possibility of the renminbi unilateral trend reappearing seems to be small. The China Foreign Exchange Investment Research Institute president Tan Yaling more bluntly, under the renminbi fell below 7 is not a bad thing, but the timing, the rhythm is very important. It is expected that the exchange rate of RMB against the US dollar will increase during the year. This level is in line with the needs of China's economic stage. The RMB exchange rate against the US dollar is around 6.6 yuan, which is conducive to the stability of foreign trade development to the real economy and the market. Risk needs to be guarded.

...The intensification of trade friction has become another major factor in the fluctuation of the foreign exchange market. Li Liuyang, chief analyst of China Merchants Bank, said: "The trade friction between China and the United States and the global trade disputes are far more intense than in previous years. Therefore, in the risk pricing of the exchange rate market this year, trade friction has become an important factor in the emergence of a sudden emergence. This year, Sino-US trade friction is different from the past, and has been upgraded from market competition to model confrontation. The whole trade negotiation process has been quite repeated, and the confidence of import and export enterprises has also fluctuated with the changes in the trade war. On June 15th, the US side After the announcement of the $50 billion tariff collection list, the domestic RMB exchange rate is expected to deteriorate significantly, which has led to a wave of depreciation."
If the trade spat intensifies, the yuan could depreciation. If the dollar is in a structural bull market, then USDCNY is headed to 7 or higher. After that, it is a matter of expectations as Tan Yaling says. She isn't concerned yet because there are no signs of depreciation expectations, but that could change.

Tan Yaling is also not one to mince words. Six years ago she warned that China's reserves could be totally exhausted if it did not change its development path. Original Chinese article: 外汇会耗尽不是危言耸听

  中国外汇投资研究院院长 谭雅玲






Foreign exchange will be exhausted and not alarmist
August 24, 2012 06:03

  Tan Yaling, Dean of China Foreign Exchange Investment Research Institute

  Recently, an article pointed out that China's foreign exchange reserves of more than 3 trillion US dollars cannot provide shelter for the Chinese economy. In the future, if China can only continue to promote investment and there is no other way to maintain economic growth, then China’s foreign exchange reserves will be exhausted within five years. This advice deserves attention.

  First of all, this "risk alarm" has sounded the alarm for the stability of the Chinese economy at this stage. At present, speculative arbitrage in China's market is very serious. This speculative state is not only unfavorable for development, but will consume the accumulation of the past and waste the reserve resources. There is a great possibility that China's foreign exchange reserves will shrink and the foreign exchange reserves will be exhausted. Due to the high concentration of speculative arbitrage in the market, rather than the development of entities and industries, coupled with regulatory shortcomings, it provides a space for speculation and a platform for speculation. As a result, this speculative arbitrage behavior is used by hot money, so that the hard-won foreign exchange reserves are consumed by their blind behavior.

  Therefore, although our foreign exchange reserves are strong, this scale is not enough to withstand international hedging risks. We currently have 3.2 trillion US dollars in foreign exchange reserves, and the foreign exchange market has a daily foreign exchange volume of 5-6 trillion US dollars. Our scale can't stop the speculation of hot money. Without their own development strategies and risk identification, without comprehensive and long-term strategic planning, foreign exchange reserves will soon be spent, destroyed, and eventually exhausted.

  Secondly, the strategy of collecting foreign exchange in the people is still struggling. The topic of foreign exchange reserves in China has been going on for more than 10 years, but the focus remains at the original point: the amount of foreign exchange reserves is too large and the efficiency is insufficient. Although China has the largest foreign exchange reserves in the world, it is the world's smaller foreign exchange market, and even the foreign exchange market is not fully open.

  At present, China's financial reform and development is at an important juncture. On the one hand, we have huge foreign exchange reserves, and the symbol of national wealth has attracted the attention of the world and the pursuit of speculators. On the other hand, China’s central bank’s hedging costs have increased, and concerns about the price and value of foreign exchange assets are increasing. Rejecting or reducing dollar assets has become a trend and trend. This kind of civil society and society are too short-term, simple cognition and demand. It directly affects the strategic implementation and progress of China's Tibet and the people. In the context of the unprecedented financial crisis, people's way of thinking is the biggest obstacle to our loss of the Tibetan strategy.

  It can be seen that this "risk-sounding" actually warns us that China's foreign exchange reserves are manifested in three aspects: first, paying more attention to quantity rather than efficiency; second, short-term price is too much, and long-term system is not enough; There are too many short-term countermeasures, and the actual effect is not good. As a result, the huge foreign exchange reserves have become China's simple strengths, burdens and burdens, and have not fully played a role in promoting our reform, construction and development. Therefore, we should refer to the countermeasures that have been made to capitalize on investment, investment and special financial policy tools to meet our reform and development needs, reduce market investment behavior, and prevent hot money intrusion; at the same time, we can consider the mechanism of foreign exchange and RMB convergence, and crack the restrictions on foreign exchange. Reserve a dogmatic passive situation to solve your own economic and financial problems flexibly and effectively.

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