RMB Exchange Rate Has Hit New Highs, Provoking Multiple Nerves

During the period from the end of 2011 to the beginning of this year, the RMB exchange rate has continuously hit new highs, which continues to stir up "nerves" from various parties.

According to the data from the China Foreign Exchange Trading Center, at 10:22 a.m. on December 26, 2011, the yuan rose 0.12% against the dollar, to 6.3290 yuan against the dollar; On the same day, the People's Bank of China raised the central parity rate of the RMB against the US dollar by 0.07% to 6.3167 yuan against the US dollar. The central parity rate of the RMB against the US dollar in the domestic spot market was 6.3167, and the closing price hit a new high for the second consecutive trading day since the exchange rate reform in 2005. The intraday exchange rate reached the highest since the exchange rate consolidation in 1993 level 。

On December 27, 2011, the central parity rate of the RMB against the US dollar was 6.3152, a slight increase of 15 basis points compared with the previous trading day (6.3167), which was a new high since the reform of foreign exchange earning.

On the first trading day of 2012, the central parity rate of RMB against the US dollar was 6.3001, up 8 times from the previous trading day (6.3009) basic point And make new foreign exchange gains.

In fact, since 2011, RMB exchange rate The problem of sustained volatility has always affected the capital market, the economic community and many enterprises, and has received widespread attention.

In 2011, the central parity rate of the RMB against the US dollar has maintained an overall appreciation trend, from 6.6215 yuan on January 4 to 6.3165 yuan on November 4. During this period, several important passes such as 6.6, 6.5, 6.4 and 6.35 were broken.

However, since September 2011, the RMB domestic and overseas markets have shown different trends. Although the central parity rate of the RMB has been open high for several days, the Hong Kong offshore RMB (CNH) and overseas nondeliverable forward markets (NDF) have experienced depreciation of the RMB across the board. The interest rate difference between the two has also triggered an arbitrage trend in the recent exchange rate market.

On November 18, 2011, the central parity rate of RMB against the US dollar was 6.3548 yuan, which was 383 basis points lower than the high point of 6.3165 on November 4 in 14 days. From November 30 to December 12, the spot exchange rate of the RMB against the US dollar hit the limit for nine consecutive trading days, and many people worried that the RMB would continue to depreciate. However, during the "9-stop" period in the spot market, the RMB appreciated by 290 basis points, or 0.29%.

So, how should we understand the relationship between the "limit decline" and the appreciation of the RMB?

Experts pointed out that the so-called RMB spot market trading limit is not the same as that of stocks we are familiar with. According to the trading rules of the RMB spot market, the fluctuation of the trading price of the RMB against the US dollar should not exceed five thousandths of the central bank's central parity rate on the current day. The fluctuation of five thousandths of the central bank's central parity rate on the current day is regarded as a limit of increase/decrease. The central bank's central parity rate on the next day has the opposite "independence", which is not a continuation of the spot market trading price on the previous day. Therefore, the so-called "limit fall" of the RMB is relative to the middle price of the day. At present, the daily central parity rate is determined by the central bank, while the spot exchange rate is the actual quotation formed by the buyer and the seller. The important difference between the two is that the central parity rate is fixed data, while the spot exchange rate is variable.

The analysts have different opinions on the fluctuation of the RMB exchange rate since 2011.

Wu Xiaoling, vice chairman of the Finance and Economic Commission of the National People's Congress and former vice governor of the People's Bank of China, said that the goal of China's exchange rate reform is to make the exchange rate flexible, so we should not worry about and panic about depreciation. Previously, the exchange rate fluctuation limit of 0.5% of the RMB against the US dollar was still sufficient, and no adjustment was necessary. The reason for the reduction of loans and the devaluation of the exchange rate before is that there are a lot of funds to be cashed back to the European and American markets for self rescue. There are also some people who have uncertain views on the development of China's economy. The rise and fall of the market and exchange rate is a normal reaction of the market and should not be alarmed.

Li Yang, Vice President of the Chinese Academy of Social Sciences, said that since the end of September 2011, the mainland's foreign exchange reserves have stopped increasing and started to decrease. At the same time, the RMB exchange rate has also stopped one-way appreciation and started to change or even depreciate in both directions. The RMB may be close to the market equilibrium level.

Li Daokui, member of the Monetary Policy Committee of the People's Bank of China, pointed out that the RMB exchange rate is close to equilibrium because of the adjustment of China's own economic structure and the gradual balance of foreign trade.

Sun Lijian, vice president of the School of Economics of Fudan University, believes that since the exchange rate reform in 2005, the RMB has continuously appreciated significantly against the US dollar by more than 30%. During this period, only after the 2008 financial crisis "took a breather" for more than a year, so many people have been accustomed to the constant appreciation of the RMB, so they will not adapt to the continuous devaluation before, or even panic. In fact, it is unnecessary. After all, the RMB exchange rate is subject to the policy control with a limit of 0.5%. However, from the actual situation, the central bank's central parity rate is very high every day. Through the central parity rate traction and control, even if it continues to "fall" continuously, it will not form a substantial devaluation of the RMB.

And then, what kind of changes will happen to the RMB exchange rate? Experts and scholars also expressed their views on this issue.

Liu Dongliang, senior analyst of China Merchants Bank, said that there were several factors determining the trend of the RMB exchange rate in 2012: first, whether the European debt crisis would worsen sharply in the first half of the year. The first half of the year is a high-risk window for the deterioration of the European debt crisis. Once this happens, China's exports are bound to be impacted, and the policy makers will certainly respond to this. Once the European debt crisis has worsened as mentioned above, it is likely that the RMB will be soft pegged to the US dollar again, or even depreciate against the US dollar periodically in order to avoid a passive sharp appreciation following the US dollar (the US dollar is likely to rise sharply due to risk aversion), thus entering a two-way wave in advance.

Secondly, is China's economy a "soft landing" or a "hard landing". At present, the slowdown of China's economy is within the acceptable range of all parties, and it is basically moving along the path of "soft landing", but the risk of "hard landing" has not been eliminated, and a series of uncertain factors may lead to the unexpected decline of the economy. At that time, as one of the emergency measures, the RMB will not be allowed to continue to appreciate significantly, so as to ensure that employment in the foreign trade industry remains stable, and to some extent offset the negative impact of the decline in other economic sectors.

Yi Xianrong, a researcher at the Institute of Finance of the Chinese Academy of Social Sciences, pointed out that the RMB exchange rate was still the most concerned issue in the world in 2012. The government should pay close attention to various trends in the international market and strictly observe the bottom line of the stability and moderate appreciation of the RMB exchange rate. Due to the European crisis, the strong US dollar will become a trend in 2012. If the US dollar strengthens, the room for RMB appreciation will be reduced. Since July 2005, the appreciation of the RMB against the US dollar has reached nearly 30%. With the rapid appreciation of the RMB, the export factor advantage of Chinese enterprises is gradually weakening. To keep the bottom line of RMB exchange rate stability in 2012, the most important thing is to further increase the pace of RMB exchange rate system reform. At the same time, we should also study the internal mechanism and general theory of the formation of the current RMB exchange rate. In this way, we can not only determine the real and reasonable price of the RMB exchange rate, but also argue against the pressure from different aspects to appreciate the RMB. In a word, the RMB exchange rate will change the trend of unilateral appreciation in 2012, which will be a favorable opportunity for the reform of the RMB exchange rate system and a more market-oriented RMB formation mechanism. In 2012, the appreciation of the RMB exchange rate should be kept at about 3%, and there should be no greater fluctuations.