Shen Ruru: *** does not have a substantial appreciation in the short term

In recent days, the United States has been urging the renminbi to appreciate. In fact, the Sino-U.S. dispute over the RMB exchange rate issue is a contest between the rapidly developing emerging powers and a "superpower" that has begun to decline. From the analysis of the situation in China and the United States, the renminbi does not have the basis for significant appreciation in the short term.

Let us first look at why the United States has pressured the renminbi to appreciate sharply. The US economy is weak, the unemployment rate is 9.5% to 10%, and the fiscal deficit has increased to 1.47 trillion US dollars this year, accounting for 10% of GDP. In order to promote the U.S. economic recovery, the Fed has proposed a new stimulus plan to implement a "quantitative easing" fiscal policy, and proposed to purchase assets (bank bonds or U.S. Treasury bonds) in the next six months at a monthly scale of 100 billion U.S. dollars. Lots of printed banknotes and the depreciation of the dollar). The U.S. government has also proposed a trade doubling plan. For this purpose, the United States needs to devalue the renminbi through the U.S. dollar so as to reduce the import of Chinese goods, increase U.S. merchandise exports, increase U.S. employment, and reduce the U.S. trade deficit.

However, it is obviously difficult to solve the U.S. economic problems by relying on the appreciation of the renminbi. Economists in the United States have pointed out that the appreciation of the renminbi will only increase the price of U.S. consumers’ purchases, increase the burden on the U.S. citizens, and then lead them to the corporate level. In the end, the cost will, in the end, not only not fall, but may rise. Therefore, the appreciation of the renminbi actually has a destructive effect on the U.S. economy.

Historical experience shows that artificially manipulated currency appreciation or devaluation cannot achieve the original purpose of the operator. Instead, it will cause domestic and even global financial order confusion and endanger the economic development.

If the renminbi rapidly appreciates non-market-oriented, it will first of all have a heavy blow to the export of labor-intensive industries in China, causing a large number of enterprises to close down and workers to lose their jobs. Therefore, maintaining the relative stability of the renminbi has a bearing on China's social stability. Secondly, appreciation of expectations will lead to a large number of hot money inflows, promote China's inflation and cause China's asset prices to rise, blowing the country's property market, stock market bubble, is not conducive to China's economic steady, rapid and sustainable development.

The central bank’s monetary policy report shows that since the exchange rate reform in 2005 to the end of the first quarter of this year, the exchange rate of the renminbi against the US dollar has appreciated by a total of 21.24%, the cumulative appreciation of the exchange rate against the Euro has been 9.34%, and the exchange rate of the Japanese yen has depreciated by 0.49%. Therefore, the increase in the renminbi against the U.S. dollar has already been quite large. At present, there is no basis for rapid and substantial appreciation.

If we accelerate the appreciation of the renminbi, only China’s trade surplus with the United States continues to rise sharply. However, in recent years, China’s trade surplus with the United States has continued to decrease, from 300 billion US dollars in 2005 to 100 billion US dollars this year. In recent months, the balance of payments is now moving towards a balance. Therefore, the renminbi does not have a significant appreciation in the short term.

On June 19 of this year, the People's Bank of China announced that it would further advance the reform of the RMB exchange rate formation mechanism and enhance the flexibility of the RMB exchange rate. This means that the exchange rate of the renminbi must rely on the “power of the market” and increase the basic role of supply and demand in the entire market in the formation of the exchange rate. Increasing the flexibility of the renminbi exchange rate means that the renminbi exchange rate will not just rise or fall unilaterally.

In addition, international capital flows also show a diversity and multi-regional character. Therefore, changes in the exchange rate of the renminbi cannot consider only the U.S. dollar but also consider the relationship with other major trading partners.

Therefore, the goal of RMB exchange rate reform is to establish a managed, floating exchange rate system based on market supply and demand, with reference to a basket of currencies for adjustment. Full realization of this goal means that the renminbi has achieved full convertibility, becoming a new important "hard currency" in the world, namely a new important international reserve currency. At that time, the size of China's economy may be the same as that of the United States. Countries need to buy a large amount of renminbi in order to purchase Chinese goods, services and invest in China, and store the renminbi as a wealth that can be revalued. As the demand for RMB continues to increase, the RMB will naturally appreciate. This is a long-term trend. This long-term trend is in contradiction with our country’s goal of maintaining stability in the short-term. The solution is to speed up the restructuring of China's economy and accelerate the transformation of China's economic development.