Is The Dollar Still Worth The Dollar?

The US dollar index has risen 25% in the past year, making China in a dilemma. Following the rise of the US dollar, the exporters who have already suffered from rising labor costs will be more upset. Letting the renminbi depreciate will bring about the risk of capital outflow and increased financial pressure of enterprises.

There are signs that the market is expecting the renminbi to depreciate. RMB cash is hovering at the bottom of its daily allowed fluctuation range. The offshore RMB exchange rate is lower than the onshore RMB exchange rate. In the middle of March, the RMB exchange rate was 6.26, and in the past year, the yuan has depreciated by about 1.8% against the US dollar. There is still room for further decline in market value.

Only the Central Bank of China can prevent the renminbi from accelerating. Since the end of 11, the Central Bank of China has been making use of its daily median price to dial back and forth the loss of the day before. Occasionally, the intermediate price will be fully increased by 2% compared with the closing price on the day before the spot remittance.

The currencies of China's Asian neighbors have been declining sharply. The fall in the US dollar against the US dollar makes its real effective exchange rate rise 6% compared to the same period last year. In view of the fact that the countries around China are fighting for a war of devaluation, exports are also an important source of demand for China's economic slowdown. Why does the Central Bank of China act as a peacekeepers? (Chart: currency weakness and growing capital flight worries)

Fear of capital flight is the primary reason. China's capital outflow hit a record in the fourth quarter of 2014. Early signs suggest that this trend will continue until early 2015. If the RMB exchange rate falls significantly, it will contribute to capital outflow, and it will also shake the bank deposit base, and then increase the risk of financial stability.

Second, China's overseas borrowing has been growing rapidly. According to the bank for International Settlements, as of the end of the third quarter of 2014, China's offshore debt exposure has risen to $1 trillion and 700 billion, almost two times the balance of 906 billion dollars at the end of 2012. If the RMB exchange rate further falls, it will raise the cost of debt service and increase the financial pressure of debt institutions.

It is widely expected that the yuan will be 6.21 against the US dollar at the end of this year, slightly higher than the current level of 6.26. The situation seems to be too optimistic. Considering the market pressure, the predicament faced by the export industry and the risk of capital flight, the most likely result is the stable and moderate depreciation of the RMB.

　　 Suppressed by a strong dollar, the yuan weakened against the US dollar in the middle price.

RMB against the U.S. dollar on Monday (March 16th) early morning with the middle price slightly bottom. Traders said that the current pressure of RMB depreciation mainly came from the strength of the international dollar and the large amount of foreign exchange arbitrage caused by the widening offshore price difference, but the continuous exchange settlement of Chinese capital banks led to RMB spot. exchange rate Steady.

The US dollar / RMB inquiry system was reported at 6.2618 noon and 6.2595 last Friday. The central parity of US dollar / RMB central bank was 6.1615, and last Friday the median price was 6.1588.

In the overseas non deliverable Forex foreign exchange (NDF) market, the US dollar / Renminbi one year variety is newly reported at 6.4065/6.4115, and last week's five was 6.4075. The latest offshore dollar / RMB spot in Hongkong is at 6.2756/76, and the last trading day is 6.2840..

　　 market This week focuses on the FED interest rate resolution and the sustainability of China's big bank settlement. The industry believes that the Fed's interest rate decision on this week to abandon "(to maintain patience before the first increase in interest rates") the higher probability of wording, but the international dollar technology overbought is more serious. There is a demand for a pullback, and the space or the limited further increase in the short term may reduce the devaluation pressure of the RMB to a certain extent.

Investors focused this week on the two day policy meeting of the Federal Reserve on Tuesday. The strong employment figures for several months have made it increasingly expected that the Fed will give up its "patience" commitment to the June interest rate increase.

Everbright Securities Group macro group Cui Rong and Xu Gao said in the research report that the Federal Reserve had a higher probability of removing "patience" wording at the 17-18 meeting of March, and maintained the judgment of raising interest rates for the first time in June. If the "patience" wording was not deleted at the 17-18 th Meeting in March, the US dollar may have a pullback in the short term, but the dollar's pullback margin will be limited before the first increase in interest rates is made clear.

The above research report pointed out that since 2015, the exchange rate of Philippines pesos, baht and India rupees has been relatively strong in Asian countries, and the RMB exchange rate has not significantly outperformed other Asian currencies in the current emerging currency devaluation tide, which means that in addition to the appreciation of the US dollar, the depreciation of the people's currency exchange rate also stems from the changes in fundamental domestic factors.

On the international exchange market, the euro / dollar fell to a 12 year low on Monday, and the latest wave of rebounding suffered a new sell-off, indicating that investors are still very short of the euro.

　　 The US dollar is accelerating the RMB exchange rate reform and the internationalization is still accelerating.

Industry analysts said US dollar index While the euro and yen exchange rate continues to remain weak, the possible room for RMB exchange rate reform is suppressed, but this may not affect the opening of the renminbi centered capital account, but will further internationalize the RMB internationalization.

Although on Thursday (March 12th)'s speech, the Secretary for foreign affairs, Yi Gang, said that the internationalization of RMB is a natural process of marketization, and it is not easy to haste. However, the central bank officials' statements during the two sessions can still be seen, whether the offshore RMB center of Hongkong is also the possibility of expanding RMB exchange quotas in Taiwan area, and the promotion of capital market liberalization, free trade area and "one belt and one road" strategy shows that the process of RMB internationalization will still shine in this year.

In fact, the downward pressure on China's economy is increasing. The complicated international situation may give regulators more impetus to promote the process of opening up to the outside world, so as to gain new impetus for development. In order to reduce the risk of foreign investment and further opening up, RMB capital account will become inevitable first, and RMB internationalization will also expand.

Li Jianjun, a researcher at the Bank of China International Financial Research Institute, thinks that China's financial reform is very vigorous this year. We can see that the logic of ring links is: first, we should push deposit insurance in China, then carry out comprehensive interest rate reform and build capital markets; while abroad, we actively promote the internationalization of RMB, especially to promote the opening of capital under the centering of RMB, including the one way, Shenzhen and Hong Kong.

In addition to policy push, the expected depreciation of the RMB exchange rate is not an obstacle to RMB internationalization. Although the market momentum is still rising due to the expectation of RMB devaluation, the currency swap price between the RMB and the US dollar keeps rising. However, under the tide of internationalization, currency stability does not mean that the appreciation trend has always been maintained.

Everbright Securities macro group Cui Rong and Xu Gao wrote a research report. In the last century, the devaluation of German Mark in the two appreciation cycle of the US dollar obviously exceeded that of the Japanese yen, but it did not affect the realization of Mark's international goal after that. Comparing Germany's experience with Mark, the current depreciation rate of RMB is not enough. The report stresses that it does not deny the long-term appreciation trend of RMB exchange rate in the process of internationalization, but this does not mean that the appreciation of RMB will be unilateral. Internationalization is not a sufficient reason for RMB appreciation.

During the two sessions, Zhou Xuedong, governor of the Nanjing branch of the people's Bank of China, believed that the convertibility of RMB under regular terms had already been realized. China now has the conditions for announcing the convertibility of RMB capital items. Judging from the economic conditions required for opening up, China's domestic economy has maintained rapid growth for more than 30 years, has a large amount of foreign exchange reserves, has a sound financial position and has less external debt. At present, the management and operation of financial institutions are relatively stable, and the opening of RMB capital accounts is also conducive to the RMB's accession to the SDR basket of currencies.

Zhou Xuedong also stressed that we should strengthen the construction of RMB offshore market, handle the relationship between offshore market and RMB capital account convertibility, enable capital to circulate and flow in an orderly way, and synchronously build two markets offshore and onshore, and establish and improve diversified, convenient and standardized cross border capital flow channels for RMB, thus forming a two-way circulation mechanism for domestic and foreign capital.

In addition, China will launch RMB cross-border payment system (CIPS) within the year, which will also be a weapon for the internationalization of RMB. The central bank has selected 20 banks to participate in the test and will promote the use of RMB in international payments.