Appreciation Is Expected To Intensify, And Exchange Rate Policy Is Facing Major Challenges.

Last week's last trading day, the Yuan went against the US dollar.

What are the characteristics of the exchange reopening for a year? Is it closing to the expected target of the policy?

Revaluation after revaluation increased by 5.5%

Since the reopening of the exchange rate reform, the RMB exchange rate has further approached the equilibrium level. The two-way floating characteristics are obvious, and the exchange rate elasticity has also increased significantly. Over the past year, the total appreciation of the US dollar has risen to more than 5%.

With the strong recovery of China's economy in 2010, the conditions for normalizing exchange rate and withdrawing from the US dollar policy at the phased stage are already available.

In June 19, 2010, the people's Bank of China announced that it should further push forward the reform of the RMB exchange rate formation mechanism, which the market called "restarting exchange rate system reform".

Over the past year, the trend of RMB exchange rate has shown two notable characteristics: "broken step" appreciation and resilience enhancement.

Data show that after restarting the second trading days, the central parity of the RMB against the US dollar has risen by 295 basis points, breaking through the 6.80 pass at one stroke.

Since the beginning of this year, under the background of the weakening of the US dollar, the trend of RMB exchange rate's "step by step" appreciation has become more obvious.

In January 13th, after the central parity of RMB against the US dollar broke through the 6.60 pass, it broke through the 6.50 pass again in April 29th and the RMB exchange rate entered the 6.4 era.

It is worth mentioning that, after the financial crisis, the central parity of the RMB against the US dollar is "6.83 yuan", which is obviously different. In the past year, when the RMB against the US dollar showed a "step by step" trend of appreciation, the two-way floating characteristics of the RMB exchange rate were also very obvious.

Data show that in the more than 200 trading days, the central parity of the RMB against the US dollar appreciated by 147 trading days, and the 92 trading days depreciated. In some trading days, the central parity of RMB against the US dollar reached the maximum amplitude of over 0.2% every other day, and the maximum appreciation and the maximum depreciation rate exceeded 100 basis points.

And on the second trading day after the resumption of the exchange reform, the central parity of the RMB against the US dollar has risen by 295 basis points, and the fluctuation is close to the upper limit of 0.5% set by the management.

Inducing unilateral appreciation expectations

Sun Yun is the head of a clothing export enterprise whose products are mainly exported to the European and American markets.

He recently talked about a business worth 1 million dollars, but he was worried about the appreciation of the renminbi over the past year.

"The other party only paid a deposit of 200 thousand dollars, and another $800 thousand for delivery in three months.

If the yuan to the US dollar had risen by 1% at that time, I would have lost tens of thousands of yuan.

Sun Yun told reporters that many small businesses today tend to sign short-term orders to avoid the risk of exchange rate fluctuations under long-term orders.

Ding Zhijie, Dean of the school of finance at the University of foreign trade and economics, pointed out that the impact of RMB appreciation on the trade sector at a return to equilibrium level is more short-term.

In the medium to long term, the pressure of appreciation will promote the upgrading of industrial structure, and will enable China's economy and commodities to regain international competitiveness on a new higher platform.

"Restarting exchange reform has played a part in relieving inflationary pressure."

Zhang Bin, deputy director of the International Finance Office of the Chinese Academy of Social Sciences, believes that in the first half of the year, when the commodity prices are soaring, a certain appreciation of the renminbi can reduce the cost of import and reduce the inflationary pressure of imports.

Experts remind that after the restart of the exchange reform, the market's expectation of RMB appreciation has been strengthened, and the phenomenon of hot money pressing is obvious. This has become a major constraint on the effectiveness of China's monetary policy.

"The important role of restarting exchange reform is to avoid a significant depreciation of the RMB against the US dollar.

But there is also a problem of unilateral appreciation expectations, bringing the influx of overseas funds.

Over the past year, the central bank has passively invested more than 3 billion yuan in the basic currency, and the money supply M2 has increased by 10 trillion yuan.

Ding Zhijie said.

Experts point out that the appreciation expectation induces the continuous entry of overseas hot money, bringing the increase of foreign currency occupying figures, increasing the pressure of domestic liquidity and restricting the exertion of the effectiveness of monetary policy in China.

The central bank has had to raise the deposit reserve rate 6 times this year, freezing more than 1 trillion and 800 billion yuan, and its direct intention is to wipe out the average monthly increase of about 300000000000 yuan in foreign exchange.

How to get rid of unilateral appreciation expectations

The expectation of appreciation has always been a lingering shadow in the exchange reform process. How to get rid of the intensified expectation of unilateral appreciation of RMB has become a problem that the policymakers in the second half of the reform will not be able to get around.

Experts point out that increasing exchange rate flexibility is conducive to the formation of exchange rate bilateral deep fluctuations, increasing the opportunity cost of unilateral arbitrage, and weakening the appreciation expectation to a certain extent.

The reason why the appreciation of RMB is not expected is mainly due to the rigidity of exchange rate mechanism and the continuous increase of foreign exchange reserves.

The risk free unilateral speculation has also led to the anticipated self actualization.

Guan Tao, director of the balance of Payments Division of the foreign exchange bureau, said that the core of improving the exchange rate mechanism is to further increase the flexibility of the RMB exchange rate and let the market play an increasingly important role in the formation of the exchange rate.

The 2010 annual report released by the safe also pointed out that the reform of the RMB exchange rate formation mechanism should be steadily promoted in the next stage.

We should focus on improving the managed floating exchange rate system based on market supply and demand, gradually enhancing the elasticity of RMB exchange rate, and giving full play to the role of exchange rate in the allocation of foreign exchange resources in two domestic and international markets.

Some scholars believe that we can use the means of substantial appreciation to allow the RMB exchange rate to rise in a lump sum so as to solve the problem of appreciation expectation.

"Rising or not, forming appreciation expectation is an important reason for the inflow of hot money. It is one of the measures to weaken the appreciation expectation with appreciation."

Ding Zhijie pointed out.

Zhang Bin also believes that the current appreciation of small steps is like sending out letters of invitation to the speculators.

However, some insiders pointed out that although China allowed RMB to us dollar exchange rate fluctuation range to be up to 0.5% of the middle price, actually, in the past year, the fluctuation of the central parity of RMB against the US dollar has rarely exceeded 0.3%.

"The fundamental reason is that the decision-making level is worried that floating over the General Assembly will worsen the current business situation of the export enterprises. In view of this, the possibility of a substantial appreciation is negligible."