"8 - 11" the Department of 2nd Anniversary: policy credibility is the key to success of RMB exchange rate stability

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"8 - 11" the Department of 2nd Anniversary: policy credibility is the key to success of RMB exchange rate stability

2017-08-12 22:49:06 45 ℃

Introduction

In August 11, 2015, the central bank announced the adjustment of RMB exchange rate against the U.S. dollar price mechanism, market makers in the daily interbank foreign exchange market before the opening, a reference to the closing rate, foreign exchange supply and demand situation and major international currency exchange rate changes on the interbank foreign exchange market, foreign exchange trading center provides middle price quotation. As the market is almost defenseless, then three days of RMB against the U.S. dollar has plunged nearly 3000 points, directly into the 6.4 era.

However, in today's "8 - 11" the exchange rate reform in 2nd anniversary, both in the onshore or offshore market, the RMB exchange rate against the dollar are swept away after the devaluation is expected to usher in a new, strong weather. In the current foreign exchange market, the central bank foreign exchange decline in short supply situation, the RMB exchange rate rise not fall, indicating that the central bank to maintain a firm attitude of exchange rate stability, is the most powerful response to early bearish, shorting the yuan forces.

At present, the RMB exchange rate reform once again usher in the window period. In this regard, China financial forty Forum (CF40) senior researcher Guan Tao puts forward the viewpoint: in the practice of the reform to the so-called best time. The reform goal is established, the need to maintain strategic concentration, but the reform route is not necessarily linear, sometimes need to retreat. Only the market is expected to stabilise and orderly flow of cross-border capital, in order to ultimately win the market and the government. "Practice since 8 \/ 11" exchange rate reform proved that the process is expected to stabilize the market exchange rate, the exchange rate policy is reshaping the credibility of the process.

Since 2017, the central bank foreign exchange market decline, in the case of shortage of foreign exchange, RMB exchange rate rise not fall, is the early bearish, shorting the yuan forces the most powerful counterattack.

Any changes would mean uncertainty, any choice is so in practice There are both advantages and disadvantages., it is difficult to choose the best time to call. The exchange rate policy is stable, regardless of float or managed floating, won't be painless, the key lies in the scenario analysis and stress testing basis, prepared to deal with plans from the worst plan, strive for the best results.

The reform goal is established, the need to maintain strategic concentration, but the reform route is not necessarily linear, sometimes need to retreat. Only when the market is expected to stabilize, orderly cross-border capital flow, and ultimately to achieve a win-win situation of market and government.

Policy credibility is the key to the success of the exchange rate stability

"Basically stable" to maintain the RMB exchange rate at a reasonable and balanced level is an important content of the current RMB exchange rate policy. "8 - 11" since the exchange rate reform, the process is expected to stabilize the market exchange rate is also a process of reshaping the credibility of the exchange rate policy.

Fixed and floating and managed floating have advantages and disadvantages. A basic consensus is the choice of the optimal exchange rate: no exchange rate system suitable for any period in all countries and a country. Among them, the choice of exchange rate "corner solution" that, when downward pressure, the exchange rate is only completely fixed or floating can overcome completely managed floating currency attacks, "intermediate solution" because of the lack of market transparency and policy credibility, multiple equilibria may appear bad results, usually ended in a currency crisis.

Exchange rate system in 1994, China has established a managed float based on market supply and demand, exchange rate system, the exchange rate to take "intermediate solution". But in a floating exchange rate system under the framework of management practice, the RMB exchange rate policy is still consistent with the basic consensus. In the past more than 20 years, when the capital outflow, the renminbi devaluation pressure, China usually adopt the "corner solution" in the exchange rate policy, such as the period of the Asian financial crisis, Chinese government promised not to devalue the RMB, the yuan dollar exchange rate basically stable at 8.28; when capital inflows, facing the pressure of appreciation, take "in the policy intermediate solution", let the RMB exchange rate appreciation against the dollar, while a substantial accumulation of foreign exchange reserves. After the end of 2006 the central economic work conference better not to pursue foreign exchange reserves, by the end of June 2014, foreign exchange reserves is still an additional increase of nearly $3 trillion.

"8 - 11" after the exchange rate reform, our country insisted with reference to a basket of currencies are floating "middle management solution", and constantly improve the RMB exchange rate pricing mechanism. By the end of 2015 announced the RMB exchange rate index, released in early 2016 the price formula of the RMB exchange rate, namely "the middle price = closing price + basket currency exchange rate movements, creatively solves the problem of exchange rate transparency" intermediate solution ". The second half of 2016, a strong background in the dollar, the yuan dollar exchange rate fell, but there is no impact on the environment and other financial markets, because the market understanding of the RMB exchange rate is falling because the dollar is strong, and non competitive devaluation. But this poses another challenge, namely in the domestic foreign exchange receipts and transaction for most of the dollar, the RMB against the U.S. dollar bilateral exchange rate decline caused by the market for the stability of the RMB exchange rate policy to understand the confusion in the foreign exchange market was intensified, shorting the yuan bearish mood.

Facing the new situation and new problems, the central bank has taken measures to optimize timely, including the end of May 2017 the introduction of hedge market procyclical behavior and better reflect the counter cyclical factor and domestic fundamental change "". Since 2017, the RMB exchange rate against the dollar did not like the market expected to break seven, but 7 months before the cumulative appreciation of more than 3%. This is not only because of the domestic economy has stabilized, the external weak dollar fundamentals such as change, and the impact of cross-border regulatory policy adjustments, but also cannot do without the RMB exchange rate to stabilize itself to boost market confidence.

Since 2017, the central bank foreign exchange market decline, in the case of shortage of foreign exchange, RMB exchange rate rise not fall, is the early bearish, shorting the yuan forces the most powerful counterattack.

With the RMB exchange rate expected to achieve super stable, the first half of 2017, the bank settlement grew 6.3%, bank Valet forward foreign exchange contract sales growth of 94.4%, bank Valet cross-border income increased by 2.6%; reduce personal foreign currency savings of $1 billion 700 million for the same period last year, an increase of $12 billion 900 million, the second half of last year, an increase of $23 billion 400 million. In the domestic and overseas RMB exchange rate again upside down, the RMB offshore renminbi relative overall bias under the strong price signal are persuasive than any persuasion and regulation, enterprises active in foreign exchange income repatriated foreign exchange, the first half of 2017, with more than a 27% reduction in the inflow of cross-border rmb.

The policy logic contributes to the realization of policy objectives

To deal with capital outflows, exchange rate depreciation pressure, devaluation is nothing less than the exchange rate, foreign exchange market clearing price; if you do not want to fall, with foreign exchange reserves intervention, the number of clearing; if both don't want to exchange rate depreciation, and do not want to reserve down, it can only use second tools -- the management of cross-border capital flows. In reality, we cannot keep a stable exchange rate, but also ensure the reserve scale, but also to ensure the free flow of capital. This is the choice of the so-called foreign exchange policy "impossible triangle".

During the Asian financial crisis, China government promised not to devalue the RMB, but not by consumption of foreign exchange reserves to stabilize the exchange rate, the main measures taken at that time is to combat evasion and illegal foreign exchange import export. This time, the government is Chinese multiple tools used in conjunction with a reference to a basket of currencies to keep RMB exchange rate basically stable, on the other hand, the use of foreign exchange reserves to stabilize the exchange rate, again taking strict cross-border capital flow management measures. The advantage of this is that because of the use of multiple tools, help to reduce the excessive dependence on individual tools.

By the end of 2016, the insurance exchange rate or insurance reserve battle on the market. In fact, the exchange rate and reserves should be one of, if not the exchange rate will require insurance reserve. During the Asian financial crisis, our government did not consume reserves to stabilize exchange rates, so even though the foreign exchange reserves of only $about 100000000000, but no one cares enough to use reserves. The use of reserves to stabilize the exchange rate is an important policy tool, so we feel that the 4 trillion reserve a burden, but dropped to 3 trillion and began to reserve enough to worry about. No matter from the traditional index or from the new standard of the International Monetary Fund, China's current foreign exchange reserves are abundant. But enough foreign exchange reserves is not an absolute objective standard, but also about the market's subjective feelings. It is in this context, by the end of 2016, the authorities to further strengthen and improve the management of cross-border capital flows, such as speeding up the domestic bond and stock market opening, and regulate the domestic enterprises of foreign direct investment, that can only be used for individual purchase of foreign exchange current account payment, further strengthen the authenticity of the audit requirements of the foreign currency cross-border capital outflows.

The improvement in the fundamentals of the market, are expected to improve the situation, expanding the inflow and outflow of capital flow management control "policy has achieved positive results. The first half of 2017, the service trade foreign exchange fell 2%; foreign direct investment in non-financial enterprises decreased by 46%, of which foreign investment in real estate and entertainment industry decreased by 80%. From the two quarter of 2016, foreign holdings of stocks and bonds and loans in RMB assets rebound, as of the end of June 2017, foreign holdings of stocks and bonds of RMB assets hit a record high; domestic institutions and enterprises to foreign debt, as of the end of March 2017, the balance of foreign currency debt also hit a record high.

The management of cross-border capital flows has greatly improved the exchange rate reform in market environment. 7 months of 2017, the balance of foreign exchange reserves rebound, a total increase of $70 billion 200 million for the same period last year, a decrease of $129 billion 300 million, which, in addition to the dollar exchange rate depreciation, gains of U.S. debt stocks rising asset prices and other reasons, the most fundamental reason is the foreign exchange reserve assets real rebound. The first half of 2017, excluding the book profit after increasing foreign exchange reserve assets (hereinafter referred to as changes in reserve assets of $29 billion 400 million), a decrease of $163 billion 600 million for the same period last year. Over the same period, the balance of foreign exchange reserves less year-on-year reduction of $171 billion 500 million, among them, changes in reserve assets less year-on-year reduction of $193 billion, a $21 billion 500 million decrease of book income.

In particular, the effective measures of foreign direct investment to abnormal growth, effectively resolve the risks of cross-border capital outflows. The first half of 2017, China's foreign direct investment in the BOP of the net outflow of 67% yoy, cross-border direct investment from the same period last year deficit of $49 billion 400 million into a surplus of $14 billion 200 million. At the same time, the current account surplus is reduced by 35%, based on the international balance of payments surplus growth of 40%; the scale is equivalent to 66% of the international balance of payments surplus of short-term capital outflows, 359% over the same period last year. This is China's foreign exchange reserve assets from negative to positive changes mainly due to the first half of 2017.

But the reform goal line is linear

The people outside the party shortly before the convening of the forum, pointed out that the central leadership to better grasp the relationship between the stability and the stability is the main tone, in the premise of maintaining the overall stability of the plan into. Maintaining stability is not nothing, instead of maintaining stability, mechanical stability, but to make a difference, in the premise of a good grasp of the degree of a good grasp of the balance, just perfect, grasp the opportunity, a good grasp of the degree.

Reviewing the reform of the RMB exchange rate market over the past two years into the deep water area, help from the following several aspects to deepen at the right time to do the right thing, good stability and the experience and understanding of the relationship:

First, let the market play a more and more important role in the exchange rate, and ultimately to the clean float is the direction of the reform of RMB exchange. However, "8 - 11" before and after the reform of practical experience, the situation is relatively favorable, reform risk is relatively small, while the situation is relatively unfavorable, reform risk is relatively large, need to be more careful planning.

Second, any changes would mean uncertainty, any choice of There are both advantages and disadvantages. So, in practice it is difficult to choose the best time to change. The exchange rate policy is stable, regardless of float or managed floating, won't be painless, the key lies in the scenario analysis and stress testing basis, prepared to deal with plans from the worst plan, strive for the best results.

Third, expand opening up the financial sector is an important aspect of building a new system of open economy in our country, but the reasonable arrangements for the opening order is very important. China practice once again proved that the market-oriented reform of the exchange rate is RMB convertibility, be free to use the money to step past kaner.

Fourth, the reform goal is established, the need to maintain strategic concentration, but the reform route is not necessarily linear, sometimes need to retreat. Only when the market is expected to stabilize, orderly cross-border capital flow, and ultimately to achieve a win-win situation of market and government.

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