The two-way fluctuations in the RMB exchange rate have intensified
Thirty percent of the world's central banks are willing to increase their positions in China
Reform and opening up in the field of foreign exchange has accelerated
The pilot project of local and foreign currency integration account has been accelerated
Expectations of the Fed's shift in monetary policy have intensified
How do spillover effects affect exchange rate movements?
Where will China's monetary policy go?
On August 11, China celebrated the sixth anniversary of the "8.11 Reform". In fact, at the beginning of the "8.11" exchange rate reform in 2015, the renminbi suffered from periodic depreciation pressure. Since 2018, the RMB exchange rate has fluctuated in both directions and is expected to diverge, and the central bank has basically withdrawn from the normal intervention of the foreign exchange market. At present, the rmb-dollar exchange rate has continued to rise for nearly a year, from May 29, 2020 to June 1, 2021, the median exchange rate of the RMB-USD exchange rate rose from 7.1316 yuan to 6.3572 yuan, a cumulative appreciation of 10.85%.
In order to alleviate the pressure of the rapid appreciation of the renminbi, on May 31, the People's Bank of China significantly increased the reserve requirement ratio for foreign exchange. On June 2, SAFE expanded the issuance of QDII quotas. On June 10, Pan Gongsheng, deputy governor of the central bank and director of the Foreign Exchange Bureau, stressed at the Lujiazui Forum that two-way fluctuations in the RMB exchange rate have become the norm, and the managed floating exchange rate system will always adhere to remind enterprises not to gamble on the appreciation or depreciation of the RMB, and long-term gambling will lose; market players should adapt to the normal situation of two-way fluctuations in the exchange rate and establish the concept of neutral exchange rate risk.
Xie Yaxuan: Chief Macro Analyst of China Merchants Securities
On the surface, everyone will feel that the People's Bank of China seems to be promoting the depreciation of the renminbi, or preventing the appreciation of the renminbi, in my opinion, the People's Bank of China actually advocates not to gamble on the unilateral exchange rate direction, so we should regard a series of measures of the People's Bank of China as a further liberalization of the supply and demand of the foreign exchange market on the one hand, perhaps before we have more restrictions on the use of foreign exchange, then now it is more convenient for everyone to use foreign exchange, is to give the supply side and demand side of the foreign market a fairer treatment. Its ultimate purpose is still to hope that the real, unrestricted market supply and demand can determine the real and more appropriate exchange rate level, so in my opinion, the People's Bank of China is not necessarily a directional choice, but a market-oriented policy direction.
Since the beginning of this year, the two-way fluctuations of the RMB exchange rate have increased. The data shows that the trend of the renminbi against the US dollar remained relatively stable from January to February, depreciating by 1.5% in March, appreciating by 3.1% in April to May, and on May 27, the onshore yuan rose below 6.38 against the US dollar, hitting a new high since May 2018. Through June, the renminbi continued to weaken against the dollar. After a monthly depreciation in June, the spot exchange rate of the renminbi against the US dollar appreciated slightly by 0.08% in July.
On August 9, Chinese Min min bank released the "Report on the Implementation of China's Monetary Policy in the Second Quarter of 2021". The central bank said in the column "Two-way fluctuations of the RMB exchange rate become the norm" that the two-way fluctuations of the RMB exchange rate will also be the norm in the future, and the RMB may either appreciate or depreciate, and no one can accurately predict the exchange rate trend. In the next step, we must continue to adhere to the managed floating exchange rate system based on market supply and demand, adjusted with reference to a basket of currencies, rationally use monetary policy tools, strengthen macro-prudential management of cross-border financing, reasonably guide expectations through various means, guide enterprises and financial institutions to establish a "risk neutral" concept, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.
Data released by China's State Administration of Foreign Exchange on July 23 showed that in the first half of this year, banks showed a surplus in foreign exchange settlement and sales, the sales exchange rate was generally stable, and cross-border financing of enterprises increased steadily. According to the data, in the month of June 2021, banks settled foreign exchange of 236.5 billion US dollars, sold foreign exchange of 214.5 billion US dollars, and settled and sold foreign exchange surpluses of 22 billion US dollars. In the first half of 2021, banks accumulated a surplus of US$135.6 billion in foreign exchange settlements. Wang Chunying, a spokesman for the Foreign Exchange Bureau, said that the foreign exchange market is generally stable, and foreign exchange receipts and payments transactions are more active, but the outstanding feature is the two-way fluctuation of the RMB exchange rate and the basic stability at a reasonable and balanced level.
As for the rhythm of the FUTURE RMB exchange rate will fluctuate in both directions, industry insiders have their own opinions. Some experts still give the RMB exchange rate a medium- to long-term upward trend forecast.
I don't think the depreciation pressure of the renminbi in the second half of 2021 will be greater. In the second half of 2021, many people in the market are worried that the DOLLAR will strengthen, because everyone thinks that the recovery of the US economy in the second half of the year may have more positive signals, and then the Fed may withdraw, will shrink the scale of quantitative easing, then refer to history, the dollar will be stronger at this stage, just look at the renminbi, so everyone looks at the yuan is weak, my view is that on the one hand, I do not oppose the RECOVERY of the US economy, but the recovery of the economy is also on the track, So it is not necessarily that the recovery of the United States is necessarily stronger than that of other countries, that is one thing. On the other hand, I think the pace of the Fed's exit easing must be slower than the market expects now, so I don't think we'll see some of the Fed's withdrawal easing any time soon. So overall in the second half of the year, I am looking at a weak direction of the US dollar, so I think the renminbi may be stronger than it is currently.
Charré: Chief Economist in Asia at the Spanish Foreign Bank
We expect the two-way fluctuation of the renminbi against the US dollar to continue for a certain period of time. Now in fact, the market's expectations for the renminbi are in the medium term, that is to say, the period from now to the end of the year is still relatively stable, so we also think that the renminbi may in fact be able to maintain between 6.4 and 6.5 by the end of the year. In the long run, we believe that the renminbi has a lot of room for appreciation against the dollar and against the other basket of currencies, but this needs to be done slowly. This is like a long-distance running race, and it may not be seen that there is a big change at present, but in the long run, the renminbi is definitely the most powerful long-distance runner.
According to the official foreign exchange reserve currency composition (COFER) released by the International Monetary Fund (IMF) in July, as of the end of the first quarter of this year, the proportion of the renminbi in global foreign exchange reserves rose to 2.45%, and the renminbi maintained its position as the world's fifth largest reserve currency, and the latest data from the World Bank financial telecommunication Association (SWIFT) showed that the proportion of international payments in the renminbi rose sharply to 2.46% in June, just one step away from the five-and-a-half-year high set in March, ranking fifth.
According to an annual survey conducted by the Official Forum of Monetary and Financial Institutions, a British think tank, 30% of the central banks surveyed plan to increase their holdings of the renminbi in the next one to two years, which is much higher than the proportion of the previous year's survey. Some analysts believe that the attractiveness of the renminbi is not only appreciation, since the epidemic last year, the renminbi has maintained relative stability and even appreciated, but since November last year, the dollar has appeared four times a single-day fluctuation of more than 4 percent, reflecting the hedging of the risk of the epidemic, the renminbi may be a safer currency.
According to IMF statistics, 37 of the 40 capital account sub-projects in the seven categories are open, and experts said that with the acceleration of the process of RMB internationalization, there is still a lot of room for China's capital account to open up.
Wang Yi: Chief Economist of Credit Suisse China
In fact, a currency to become an international currency, it needs several necessary conditions, first of all, there is enough trade to support the use of this currency, I think the country has reached this condition; there is a more decisive factor, in fact, is its convertibility. I think the country is also in the direction of the hope that the convertibility of the renminbi can be further liberalized, which can better encourage the use of the renminbi overseas. But in the current situation, the actual situation is that the convertibility of the renminbi is not completely convertible, it is a certain current account current account, it can be freely converted, but the capital account capital account, or a certain form of this capital control here.
In the next few years, if the renminbi is to further become an international currency, our understanding is that in the area of convertibility, there must be a very large, or very strong, and very determined attitude and policy trend of more free conversion.
On July 23, the State Council's new office held a press conference on foreign exchange balance data for the first half of the year, and the spokesman said that China will improve the management of funds issued by foreign institutions to issue stocks and bonds in China, support private equity investment funds to carry out cross-border industrial and industrial investment, and expand the pilot of qualified domestic limited partners and qualified foreign limited partners, that is, the pilot of QDLP and QFLP.
On July 26, the pilot project of local and foreign currency bank settlement account was launched in Guangzhou, Shenzhen, Fuzhou and Hangzhou. This pilot will support depositors to receive, pay and settle multi-currency funds and centralize and unified management through the establishment of a local and foreign currency bank settlement account, which will facilitate the independent use and management of local and foreign currency funds by enterprises and individuals to a greater extent.
In addition, the international denomination currency of the renminbi is still in its infancy, and most of the current commodities are denominated in US dollars and euros, and only Chinese futures prices such as copper, iron ore, PTA and oilseeds have a certain international influence.
On May 28, the China Securities Regulatory Commission approved the Shanghai International Energy Exchange and the Dalian Commodity Exchange to carry out crude oil and palm oil options trading respectively, and introduced overseas traders to participate in the transaction. Experts said that with the introduction of a series of policy measures, the development strategy of RMB internationalization in the new cycle has gradually become clear, that is, the new "Trinity" strategy with the core of "promoting RMB-denominated commodity futures trading + accelerating the opening of onshore financial markets + encouraging the use of RMB in areas along the 'Belt and Road'".
In fact, looking back at China's exchange rate reform, there are three landmark historical events: in 1994, the RMB implemented the exchange rate integration reform, which reconciled the official exchange rate of 5 yuan to 1 US dollar in parallel with the adjustment exchange rate of 10 yuan to 12 yuan of the transfer center to 8.7, and in fact adopted an exchange rate arrangement pegged to the US dollar, which dealt well with the Asian financial crisis; on July 21, 2005, the central bank announced the implementation of a managed floating exchange rate system based on market supply and demand, adjusted with reference to a basket of currencies On August 11, 2015, in order to enhance the degree of marketization and benchmarking of the rmb exchange rate median price, the People's Bank of China announced the adjustment of the rmb exchange rate mid-price quotation mechanism, introducing market supply and demand factors in the formation of the mid-price, and truly improving the volatility of the exchange rate.
On July 30, the Chinese Min min bank held a work conference in the second half of 2021, in which the central bank's proposal to "do a good job in cross-cyclical policy design" echoed the requirements of the Politburo meeting held on July 30. Experts said that the expression of "cross-cycle regulation" is mainly relative to the previous "counter-cyclical adjustment". The focus of the two is different, counter-cyclical for the short term, and cross-cycle for the medium and long term; the policy implementation methods are also different, the implementation of counter-cyclical adjustment is flexible, precise, and fast, while the implementation of cross-cycle adjustment is relatively stable. Cross-cycle adjustment is that policy implementation should not only effectively deal with short-term problems, but also leave policy space for dealing with future uncertainties.
On August 6, the U.S. Department of Labor released data showing that 943,000 new non-farm payrolls were created in July, up from 938,000 after the june revision and the largest increase since August last year. The unemployment rate fell to 5.4 percent from 5.9 percent in June, the lowest level since March 2020. The view is that the recovery rate of employment is expected to prompt the Fed to signal a contraction in August. But Fed Chairman Jerome Powell recently testified before Congress that the labor market had not made "more substantial progress" and was not enough to support a contraction bond purchase program. Powell also insisted that current inflation is a temporary phenomenon. Experts said that the impact of future Fed policy adjustments on China's cross-border capital flows is generally controllable.
The history of the renminbi from weak to strong in the past 20 years or so is the history of China's economic strength and international influence gradually strengthening, and it is also an important factor in the fruitless return of the renminbi during the Asian financial crisis and the global financial tsunami. Since June 2020, the RMB exchange rate has fluctuated higher, which is also the impact of multiple positive resonances such as good epidemic prevention and control, rapid economic recovery, large interest rate differentials between China and the United States, and weak US dollar trends. At the same time, the success of the exchange reform marked by a strong renminbi has added to China's belief and courage in abolishing the mandatory settlement of foreign exchange income from the current account, promoting two-way financial opening up in an orderly manner, and steadily promoting the internationalization of the renminbi.
Editor: Dou Wen, Yang Yufei