China'S Strategy For Strengthening The US Dollar

I believe that in the face of this year's possible strength of the dollar, at least the following points deserve special attention.

First, it is necessary to stabilize the exchange rate and stabilize the economy in the short term and avoid large outflows of funds.

We can see that the strengthening of the US dollar has made the Chinese economy face major challenges, especially the RMB's continued depreciation against the US dollar.

But from a basket of currencies, although the RMB against the US dollar is obvious, it has maintained an upward trend for other currencies.

Overall, however, China's overall competitiveness has weakened and its capital outflow pressure has also increased.

There is a view that the RMB should be devalued to resist the crisis.

In this regard, the author disagrees.

Taking history as an example, there has been a heated debate in the country about whether or not to hold dollars after the dollar went down in the wake of the financial crisis in 2009.

At that time, the radical view was that China should sell the assets of the US dollar and the US dollar once and for all.

This caused great pressure on the foreign exchange management department at that time.

Afterwards, at that time

It has rebounded from the weakest period, and then the US recovery is also strongest in developed countries.

If the lack of force at that time took extreme action, today's losses could be extremely heavy.

Returning to the present, the same reason is that if the renminbi is allowed to depreciate at a time, it will be difficult to achieve the expected effect. After all, under the weakening of global demand, the depreciation will be limited to the export enterprises, and the devaluation from the confidence level will inevitably weaken the market confidence and trigger more capital flight pressure and aggravate the crisis situation.

Therefore, efforts should be made to stabilize the RMB's depreciation expectations in the short term.

Controlling the exchange rate after the depreciation of the US dollar between 6.2 and 6.4 this year should be a better choice after weighing.

Second, more stability

The measures should be launched one after another to stabilize the fundamentals.

At present, China is facing weak growth and low inflation. In January 2015, CPI dropped to below 1%, which aggravated the market's concern about deflation.

Of course, I don't think China's economy will be deflationary this year. It is estimated that CPI will reach 1.6% in the whole year.

However, it is necessary to implement a series of quasi reduction and interest reduction, because only in this way can monetary policy return to neutrality.

In addition, increasing fiscal expansion to stabilize growth is also a necessary measure to stabilize the fundamentals.

Third, speed up reform to enhance market confidence and find a source of power for sustained growth.

Generally speaking, most countries with crises in the first few rounds of the dollar have a common feature, that is, the early dollar overflows led to the shelving of these countries because they could enjoy the feast of capital, and then the international environment changed instantaneously, and the withdrawal of capital became a direct inducement of the danger.

From this perspective, whether the economy is healthy is an important sign of whether the crisis will break out.

Fourth,

We need to push ahead in time.

As early as the outbreak of the financial crisis in 2008, Zhou Xiaochuan, governor of the central bank, published an article on the reform of the international monetary system, and discussed the inherent defects and systemic risks of the international monetary system under the dollar standard system.

In the past two years, the central bank is also actively accelerating the pace of RMB internationalization to cope with the dilemma.

It is gratifying to note that, compared with the past, promoting the internationalization of RMB mostly came from China's internal voice. Nowadays, more and more countries are questioning the hegemony of the US and the US dollar. The internationalization of RMB is no longer China's wishful thinking, but has a stronger overseas demand.

From this perspective, the current RMB is facing the opportunity to move towards the world, and it is just time to accelerate the entry of RMB into the international reserve currency.