Reasons for the depreciation of the renminbi under the capital account and current account

The ultimate goal of China's foreign exchange reform is to realize the free convertibility of the renminbi. In 1996, the renminbi has realized the convertibility under the current account of the balance of payments, but the rapid growth of China's international investment scale, the development of China's financial market, China's accession to the world organization and the strengthening of regional economic cooperation, etc., all objectively require the renminbi to realize the convertibility under the capital account at an early date. There are three levels of currency exchange:

First, it is not convertible; second, convertibility under the current account of the balance of payments; Third, it is fully convertible, that is, it is freely convertible under both the current account and the capital account. The International Monetary Fund (IMF) defines currency convertibility as the lowest level of convertibility under the current account. International experience shows that in order for a country to open up its capital account to the outside world, it should meet at least the following conditions:

Low inflation rate, reasonable interest rate, good domestic financial system, strong macroeconomic regulation and control ability, developed capital market, general balance of foreign exchange receipts and payments, flexible and efficient micro enterprise mechanism, complete and effective financial supervision and laws and regulations, etc. At present, China's social and economic strength cannot fully meet the requirements of free currency convertibility, and the opening up of the capital account is still constrained by many conditions. In such a situation, opening up the capital account will make the situation of state-owned enterprises more difficult.

Of course, the support for state-owned enterprises can be strengthened through inclined policies, but enterprises will become weaker under the "umbrella" of the state, and at the same time, this will also increase the burden on the national finances and increase the possibility of economic crisis. The realization of the free convertibility of the renminbi is an objective requirement arising from the changes in the international and domestic economic situation. The realization of the free convertibility of the renminbi is necessary to improve the investment and business environment of foreign-invested enterprises and expand the scale of foreign investment.

The large-scale entry of foreign capital into China requires a more open and fair market economy, as well as a free, relaxed, and fair financial environment. China's accession to the World Organization has put forward new requirements for China's foreign exchange management system. For a long time, China has mainly used foreign capital to make foreign direct investment.

After China's accession to the WTO, China has opened up the fields of banking, insurance, commerce, and intermediary services, and the channels for China to use foreign capital have increased, and the number of funds raised by issuing overseas bonds and foreign loans has increased markedly. The rapid rise in the scale of China's capital flows and the continuous improvement of liquidity urgently require the deregulation of the capital account.

The pressure on the renminbi to depreciate comes from a variety of reasons, such as capital outflows, active intervention by the central bank, and slowing economic growth, but mainly due to a deficit in the balance of payments.

There is a deficit in the balance of payments.

Due to China's relatively large surplus, there has always been a surplus in the current account. However, since 2014, some changes have taken place, and China's capital account deficit has begun to increase, and in recent times, the capital account deficit has been relatively large, larger than the current account surplus, so there has been a balance of payments deficit.

Judging from the natural trend of the economy, on the one hand, the US economy is gradually strengthening, and on the other hand, China's economy is gradually weakening. The change in the relative growth rate of the economic situation between China and the United States shows that the exchange rate pegged to the US dollar in the past is gradually deviating from the equilibrium exchange rate, so the market demand for the depreciation of the renminbi has actually appeared.

The relative changes in the economic situation between China and the United States are the main reasons for the depreciation of the RMB. There are many determinants of the exchange rate, but the exchange rate fluctuation should mainly be understood from the performance of the real economy, and other short-term factors and expected factors can only be regarded as a disturbance, after which the exchange rate will eventually return to the exchange rate determined by the fundamentals.

A certain degree of depreciation of the RMB will hedge against the various adverse effects of friction on enterprises, and also reserve room for the possible appreciation of non-US currencies against the US dollar in the future, after all, friction often brings about the depreciation of the US dollar. The central bank's RRR cut some time ago, on the one hand, was to cushion the impact of deleveraging, and on the other hand, it also brought about the effect of exchange rate depreciation.

The renminbi appreciated by 11 percent from May last year, and there are two main reasons for the renminbi's strength. One is intrinsic reasons. Behind the strengthening of the renminbi is the continuous improvement of China's productivity, thanks to excellent and scientific epidemic prevention and control, China's manufacturing enterprises can take the lead in starting work.

Second, the continuous rise of the RMB against the US dollar also benefited from China's precise monetary injection and scientific fiscal policy.

There are problems with the monetary system and exchange rate policy of the renminbi. China's RMB exchange rate closely follows the US dollar, and it is basically a fixed exchange rate (resulting in a long-term undervaluation of the RMB).

It has only been in recent years that the renminbi has been opened up to "moderate" freedom, so the long-term undervaluation of the renminbi has gradually improved, and the value has returned to the market mechanism.

What is the relative appreciation? The appreciation is only due to the depreciation of the dollar.

low-cost exports, export subsidies, etc.

The exchange rate with the US dollar is paired! In the past, one dollar was exchanged for more than eight yuan. Now one dollar is exchanged for more than six yuan, so that the renminbi will appreciate.

For the world's factories, who export more than import, it is relatively better for the RMB to depreciate.

There are many answers to the question of appreciation, depreciation, and depreciation, the most intuitive is that the U.S. economic crisis wants us to appreciate the value of the RMB? And why are we always reluctant to appreciate? That's the answer.

International** is traded in US dollars, and raw materials and labor costs are traded in RMB. If the same thing is produced, the export will remain unchanged, but the RMB will depreciate, which means that the same ** will be exchanged for more RMB, and from a macro point of view, the domestic value will be higher.

There are pros and cons, the depreciation of the renminbi and the gradual decline of people's purchasing power are not good for the people;

But for the country's import and export, it is not necessarily a bad thing, because the depreciation of the RMB, the same, the appreciation of foreign currency, the increase in purchasing power, which will expand exports, the depreciation of the RMB, will reduce imports, exports are greater than imports, this is the surplus.

At the same time, because of the appreciation of foreign currency, it will expand foreign friends to travel and spend in China, and it can also play a role in expanding domestic demand.

The depreciation of the renminbi, also known as inflation, is an external appreciation for the domestic situation, for example, against the US dollar.

In the medium and long term, the level of development and basic characteristics of China's economy determine that it is better for the renminbi to maintain basic stability. At present, we should continue to strengthen and improve macroeconomic regulation and control, use various means to promote the balance of payments to tend to balance, and further promote the reform of the exchange rate formation mechanism.

Avoiding the risk of RMB depreciation:

1. Buy corporate bonds, annual income of 6%; (like buying **);

2. Before the RMB depreciates sharply, exchange the RMB for US dollars and then exchange it back;

3. Don't buy, buy after a big fall (>25%), and sell after a big rise; And so on and so forth.

The appreciation of the renminbi is for the international situation. The depreciation of the renminbi, also known as inflation, is the situation at home.