Guard Against The Negative Impact Of RMB Appreciation On The Economy

China's overall stable economic operation, strong resilience and great potential will determine the long-term stable development trend of RMB exchange rate. In this process, we need to prevent the adverse effects of short-term large fluctuations or rapid appreciation on macroeconomic stability.

After more than four months of sharp appreciation of the RMB exchange rate, the central bank adjusted and implemented the foreign exchange risk reserve ratio for more than two years. On October 10, the central bank announced that the foreign exchange risk reserve ratio of forward foreign exchange sales business will be reduced from 20% to 0 from October 12, 2020. In the next step, the people's Bank of China will continue to maintain the flexibility of the RMB exchange rate, stabilize market expectations, and keep the RMB exchange rate basically stable at a reasonable and balanced level.

As an exchange rate hedging derivative product provided by banks to enterprises, forward foreign exchange sales business is an important embodiment of financial services to the development of real economy and rich macro-control measures. For enterprises, the forward purchase of foreign exchange can lock in the currency, amount, exchange rate and delivery period of RMB to foreign exchange settlement or sales in advance, so as to avoid future exchange rate risk to a certain extent. As far as the spot exchange rate is concerned, it is not necessary for the foreign exchange purchasing enterprises to adjust and control the foreign exchange rate immediately. Therefore, in 2015, the central bank incorporated the forward foreign exchange sales business of banks into the macro Prudential policy framework, and charged 20% foreign exchange risk reserve for financial institutions carrying out the business of forward foreign exchange sales on behalf of customers, so as to control the basic stability of the exchange rate at a reasonable and balanced level.

Data show that the exchange rate of RMB against the US dollar has risen by nearly 6% since the beginning of June. In the third quarter, the onshore RMB rose by 3.89% against the US dollar, the largest quarterly increase since the first quarter of 2008. On the first trading day after the national day, the onshore RMB / US dollar exchange rate was up by more than 1100 points. At present, both the onshore and offshore exchange rates have risen above the 6.70 level, reaching a 17 month high.

Under the situation of economic globalization and open macro-economy, flexible exchange rate mechanism is the stabilizer for China to cope with external shocks and achieve internal and external balance. The most important thing is to keep the RMB exchange rate basically stable at a reasonable equilibrium level. The rapid appreciation or depreciation of RMB is not conducive to the basic stability of RMB exchange rate at a reasonable equilibrium level, and is not conducive to macroeconomic stability.

In the foreign exchange market, the rapid appreciation of RMB, especially the strong expectation of the public for the rapid appreciation of RMB, may cause a large number of speculative capital to flow into China. The capital inflow will increase the central bank's foreign exchange reserves and domestic money supply, thus affecting the level of domestic inflation rate and the stability of prices. Obviously, this is closely related to the stabilization of finance, foreign investment and expectations And so on.

At the same time, the rapid appreciation of the RMB exchange rate will attract more speculative capital into China, which will also have adverse effects on the stability of domestic asset prices. In particular, a large number of foreign capital inflows may enter the capital markets such as the stock market or futures market, which may bring liquidity "prosperity" in the short term. However, speculative capital will not form value investment, on the contrary, it will aggravate the stock market and futures market The fluctuation of the market is not conducive to the stable development of the capital market, and ultimately affects the stable operation of the macro-economy.

In addition, the rapid appreciation of RMB exchange rate will also increase the cost of export enterprises, which is not conducive to stabilizing foreign trade, which is one of the "six stabilities". In the first eight months of 2020, China's exports reached 11.05 trillion yuan, an increase of 0.8%. In the context of the impact of the epidemic on foreign trade, this achievement has not come easily. It can be said that the stable development of foreign trade in the future, especially the export enterprises to cope with the impact of the epidemic situation and stabilize the export volume, especially the stability of the RMB foreign exchange market is needed to protect and move forward.

Although the recent appreciation of RMB is affected by the overall weak factors of US dollar, it also reflects the characteristics of China's economic recovery better than expected and full of development resilience. In the medium and long term, the trend of RMB exchange rate will also depend on economic fundamentals. China's overall stable economic operation, strong resilience and great potential will determine the long-term stable development trend of RMB exchange rate. In this process, we need to prevent the adverse effects of short-term large fluctuations or rapid appreciation on macroeconomic stability.