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First, the appreciation of the renminbi against the US dollar: the "Waterloo" of the traditional currency crisis theory?
Since the beginning of this year, the continued appreciation of the renminbi against the US dollar has shocked many people's chins. Economists may have never had such a ridiculously predictive record of predicting the RMB exchange rate in 2017, which can even be called the “Waterloo†of the traditional currency crisis theory. At least they have not fully realized that the current operational structure of the global economy has largely exceeded the research paradigm of the classical exchange rate pricing model.
Since the RMB entered the positive feedback channel of “continuous depreciation + foreign exchange lossâ€, economists have adopted the currency crisis model that was applied to the Latin American debt crisis and the Southeast Asian financial crisis, and applied it to China, the world’s second largest economy. A series of pessimistic conclusions came out. The classic exchange rate pricing model, whether it is focused on the purchasing power parity theory of the current account, focusing on the interest rate parity theory of financial accounts, or focusing on the exchange psychology and exchange rate overshoot theory of the trading disk, all believe that the renminbi needs to be depreciated substantially to achieve balance. However, these theories only give a deduction of the benchmark situation, but do not fully consider the more complicated factors such as economic relations and policy games of big countries.
Looking back at the shocking change of the RMB exchange rate, there have been a series of accepted explanations in the market, such as the disillusionment of Trump policy, the normalization of monetary policy in non-US currency regions, the over-expectation of economic growth in Europe and China, and the People’s Bank of China. Capital management and macro adjustment factors, etc. Economists who are good at ex post explanations have thoroughly and thoroughly analyzed the mystery of this appreciation from basic to technical. But we need to pay attention to the phenomena and problems that are worthy of attention behind this exchange rate change.
First of all, since the beginning of the year, the RMB exchange rate has only appreciated sharply against the US dollar, but it has depreciated significantly against the world's major non-US currencies. Since the end of last year, the RMB exchange rate against the US dollar has appreciated by 5.8%, but the depreciation of the euro and the British pound has exceeded 7%, resulting in a sharp drop in the real exchange rate index of the RMB. It can be seen that if the basket of currencies is used as the coordinate, the RMB does not actually appreciate.
The structural changes in the global currency pattern are factors that cannot be ignored in the pricing of the RMB exchange rate. According to the triangular equilibrium arbitrage model, under the same quotation method, the appreciation of the renminbi against the US dollar = the appreciation of the euro against the US dollar - the depreciation of the renminbi against the euro. It can be seen that if the European economic recovery is more than expected as the central force in determining the currency change this year, then the exchange rate of the RMB against the US dollar is actually largely controlled by the performance of the Euro. The exchange rate of the euro against the US dollar and against the renminbi is behind the expected calibration process of economic growth and monetary policy in the three major currency regions. The analysis of the currency pair is not only a mathematical equilibrium relationship, but also a series of events behind each currency area.
In addition, we need to note that while the RMB has appreciated against the US dollar, there has not been a significant improvement in the capital account. And because of the valuation effect brought about by changes in asset prices, and the “education†of exchange rate fluctuations experienced by investors since the exchange reform, the willingness of residents and enterprises to make foreign exchange purchases has changed profoundly, and the changes in foreign exchange reserves and foreign exchange reserves have deviated. . At the same time that foreign exchange reserves continued to improve, foreign exchange holdings continued to decline for 21 consecutive months. At the same time, it is also necessary to see that the logic of this appreciation process has fundamentally changed from the past, and the positive feedback loop between exchange rate appreciation and external reserve increase has not formed. In the past, the renminbi increased its value from 6.9 to 6.5, and foreign exchange reserves increased by 400 billion US dollars. However, if the same appreciation rate is removed, if the valuation effect is removed, the current round of foreign exchange reserves will not increase.
The liquidity of the offshore RMB market has not significantly improved. This often represents the international market demand for RMB currency, and it also represents the degree of exchange rate marketization and the internationalization of the RMB. The addition of a counter-cyclical adjustment factor can also have a fatal effect on a speculative disc that is short or long. In short, the traditional exchange rate pricing and currency crisis theory, in the current complex "three countries" currency game, in order to obtain the previous interpretation and prediction capabilities, there are still many areas for improvement.
Second, the RRR reduction: the opportunity of the time window and the deduction of “metaphysicsâ€. According to the recent regulatory trend and monetary policy preferences, the possibility of referring to the RRR reduction is no different from “dreaming daydreamingâ€, or as “talking about ghosts during the daytimeâ€. reality. Global monetary policy is turning, the Fed does not have to say that it has already stopped quantitative easing (QE) and stepped into the interest rate channel, and the contraction has begun to be put on the agenda; the strong economic recovery situation in the euro zone is enough to let the ECB claim to withdraw from QE. Became a “credible promise†that the market is willing to believe; the Bank of England began to discuss raising interest rates, and the Bank of Japan also expressed its determination to withdraw from the 20-year easing. Against the backdrop of this global currency's large ebb, the Chinese central bank has launched a highly restrictive measure, both in terms of implementation effects and signal significance, and will undoubtedly put the exchange rate in a very dangerous situation.
However, the unexpected appreciation of the renminbi provided a large imagination for the RRR cut. Under the situation that the domestic inflation rate is still at the target and economic growth is beginning to show signs of decline, the over-expected appreciation of the RMB exchange rate is the originally tightened “triangular paradoxâ€, inciting a space for self-implementation of monetary policy. Although it seems that lowering the deposit reserve is contrary to the current financial de-leverage of the monetary authorities, we believe that it is necessary to understand the necessity and possibility of reducing the deposit reserve from the deep structure of Chinese money supply and demand. Even theoretically, it can be inferred that lowering the deposit reserve will not only push up financial leverage, but will help improve the structure of financial leverage (if only financial leverage is defined as the relationship between assets and liabilities).
The rapid growth of financial interbank business in recent years actually reflects the deep contradiction of money supply and demand. If the supply of base money before 2014 is mainly due to the foreign exchange holdings formed by the surplus of foreign exchange settlement and sales, then as the capital account turns to the deficit and triggers a rapid contraction of foreign exchange, the supply base of the base currency begins to change to Domestic financial assets. In this way, between the central bank and the balance sheet of deposit-taking financial institutions, there is a strange phenomenon that is difficult to understand: on the one hand, commercial banks are forced to deposit deposits with a ratio of up to 18% at a very low rate of return. On the other hand, the central bank's debt side, at a higher interest rate, uses central bank bills, SLF, MLF and other tools to absorb funds from the central bank's asset side. The central bank's assets and liabilities can form a spread of about 2%.
In addition, there is sufficient evidence to prove that the rapid rise of inter-bank business or financial leverage in recent years is related to the gap in money supply and demand caused by excessive deposits. Due to the high statutory deposit reserve ratio, the general deposit (business and resident savings) has a large leakage during the creation process, which leads to a large currency gap in the process of meeting social financing needs. If large state-owned banks can directly refinance funds from the central bank, then small and medium-sized banks can only fill the gap by borrowing and issuing interbank deposit certificates. This is the main reason for the rapid growth of interbank liabilities in recent years, and it is also the main reason leading to the paradox of “high deposit rate + high money multiplierâ€.
According to this deduction, the higher legal deposit rate has become the main structural contradiction that plagues the efficiency of China's currency operation. To truly push the financial industry out of the virtual reality, we must seriously consider the profound significance of the RRR reduction, not just in The level of monetary policy tools is considered. Intuitively, commercial banks will put a statutory reserve of up to 18% to the central bank account, which is itself a kind of “financial idlingâ€, which is undoubtedly a mismatch and waste of financial resources. Of course, in the face of the pressure from the global monetary easing policy, the monetary authorities need to carry out more elaborate operation design. Fortunately, the current monetary space given by the appreciation of the renminbi and the steady inflation has undoubtedly provided a rare window for the central bank to bravely take the pace of RRR cuts.
(The author of this article: Chief Economist of Qingdao Bank, Vice President of Shandong Huihui Financial Research Institute, Master Instructor of Shandong University, Academic Advisor of Wendao Think Tank, Young Scholar of China Financial Forty Forum)
The mystery of the appreciation of the renminbi and the confusion of the RRR
Abstract Since 2017, the sharp appreciation of the RMB against the US dollar is striking, the RMB has been full of pessimism traditional currency crisis theory being questioned. At the same time, in the case of a decline in foreign exchange holdings for nearly three consecutive years, the call for lowering the statutory deposit reserve is getting higher and higher...
Since 2017, the sharp appreciation of the renminbi against the US dollar has been astounding, and the traditional monetary crisis theory that has been pessimistic about the renminbi has been questioned. At the same time, in the case of a decline in foreign exchange holdings for nearly three consecutive years, the call for lowering the statutory deposit reserve is getting higher and higher. The huge amount of deposits deposited on the central bank's accounts itself also has the problem of mismatching and wasting of money resources. In the context of the global currency policy shift, it is undoubtedly risking a large exchange rate depreciation risk, but the current appreciation of the renminbi and stable inflation provide a realistic possibility for the RRR cut. The mystery of the appreciation of the renminbi and the confusion of the RRR have become the main issues that investors need to consider when deploying large-scale assets.