Adjustment of the RMB exchange rate hike before the practical significance

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					Adjustment of the RMB exchange rate hike before the practical significance
Adjustment of the RMB exchange rate hike before the practical significance
Medium-term macroeconomic policy institute's chief strategist: Fu Peng
researchers: A. Chao Wei
Mentioned here does not mean the yuan revaluation of the RMB exchange rate
adjustment, but in the middle of the value of the RMB exchange rate to maintain the
stability of the floating range of the expansion. The reason why the concept of using
the RMB exchange rate adjustment, because we believe that appreciation of the RMB
current point in time is not ripe. On the one hand, China's foreign trade
balance can achieve sustainable and then nothing to do with the RMB exchange rate,
domestic investment and foreign trade surplus is greater than the consumption of only
the external manifestations. Therefore, only reduce the rate of domestic savings,
promote domestic consumption, economic restructuring can really resolve the
problem of RMB exchange rate; the other hand, we may start once the RMB
appreciation will fall into a continuous appreciation of the channel, which is not
conducive to China's economy development.
But we also see the expansion of the yuan trading band for the moment, China also
has important practical significance, in the current Bufen commodity prices has risen
to 08 cases before the crisis, the RMB exchange rate band to expand on the one hand
can ease RMB appreciation pressures, on the other hand can also be imported
properly restrain inflation.
In addition, we believe that the RMB exchange rate to adjust interest rates before the
economy running smoothly is significant as well: first, the exchange rate adjustment
of economic structure adjustment and the fact is synchronized, and the economic
structural adjustment process in its role to be greater than the interest rate. For a
developing country like China, immature financial markets and capital controls make
the exchange rate was stronger than in the effectiveness of monetary policy interest
rate. Currency appreciation to curb economic overheating, reduce imported inflation
pressure; the other hand, currency devaluation to stimulate exports, resulting in
domestic asset prices and bring inflation. As China 经济 structure adjustment, the
import growth rate is gradually expanding, so how to control imported inflation, yes
Wei Lai Chinese Mianlin the main difficult concept would rate gradually in the
process will play Zuoyong.
Second, if we did not adjust the exchange rate under the premise of first interest rate
increase can not effectively restrain the expansion of the domestic asset prices and the
rational     management       of    inflation  expectations.    "Impossible
triangle" tells us that a free floating exchange rate system to impose the
state can not simultaneously achieve the free movement of capital, the independence
of monetary policy and exchange rate stability. The global financial crisis has also
told us that interest rates can not effectively contain asset price bubbles. Liquidity
birth asset price bubble, and current asset price bubble in China and the Chinese
exchange rate system, largely related studies have shown that since 2003, Foreign
Exchange Reserves accounted for the proportion of the amount of base money has
increased significantly. In the case of the exchange rate does not adjust, relying solely
on interest rate policy in trying to contain asset price bubbles, may not achieve goal of
curbing inflation.
Finally, U.S. interest rate hike will lead to the expansion, which in turn will further
fuel expectations of RMB appreciation. Situation from the view of U.S. economic
recovery, unemployment and economic recovery in the U.S. budget deficit is the
biggest obstacle on the road, then this determines the U.S. economic recovery will be
a slow process, and this was also the Federal Reserve to maintain low interest rates,
the main purpose. Therefore, in this case, the Chinese rate hikes will lead to the
expansion of Sino-US interest rate differentials, which contribute to the expectation of
RMB appreciation. In addition, interest rates means that China's economic
situation better than expected, based on this is also expected to make large capital
inflows into China, will put pressure on RMB appreciation.
In short, the strategy, the RMB, the yuan revaluation point in time is not mature, but
that does not prevent us from maintaining a stable RMB exchange rate based on the
median modest expansion of the exchange rate band. In addition, exchange rate
adjustment and interest rate time, we tend to exchange rate adjustment in interest rates
first, so that China's economic restructuring and sustainable growth in
more good than harm.