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Academic member of the China Forty People Forum, senior researcher, former director of the International Balance of Payments Department of the State Administration of Foreign Exchange
Sina Finance News On December 13, 2016, the “IAMAC Award—2016 Third China Insurance Asset Management Industry Most Popular Seller Analyst Awards†was held in Beijing. Guan Tao, former academic director of the China Financial Forty Forum, and former director of the International Balance of Payments Department of the State Administration of Foreign Exchange, delivered a keynote speech at the meeting.
The following is a partial record:
Guan Tao: Dear Mr. Duan, Secretary-General Cao, and distinguished guests, Good morning, I am very happy to attend the awards meeting of the Insurance Association. First of all, I also congratulate the relevant institutions that have won this award today. Just now, the host of the conference said that I would like to take this opportunity to report to you personal views on the reform of the RMB exchange rate. Now the RMB exchange rate issue may have a very large impact on the audience. On the one hand, some assets in the institutions are allocated overseas, and the RMB exchange rate changes have a direct impact. In addition, the interaction between the foreign exchange market and other financial markets is also growing. When we are concerned about the domestic market, we must not pay attention to what happens in the external market.
How to analyze and judge the current foreign exchange policy or the policy framework of foreign exchange management? Recently, a series of intensive policies to regulate cross-border capital flows, especially foreign investment, have been booming in recent years, but in the recent period, four ministries jointly issued a document on foreign investment, I am here. The analysis framework introduced to everyone, everyone will better understand why this thing is done.
In response to the impact of capital inflows and outflows, from the perspective of foreign exchange, there is an impossible triangle. There is an old ternary paradox. I have turned it into an intuitive foreign exchange policy. There are three tools, one is the exchange rate, and the other is Intervention, as well as regulation. The exchange rate is the price of the market, the foreign exchange inflow of capital exceeds demand, the appreciation of the renminbi, and vice versa; the intervention and regulation are all quantitative. When the supply exceeds demand, the renminbi is not expected to increase the foreign exchange reserve, and vice versa; The control of the flow, you have to use at least one of the three tools, it is impossible to not want to move the exchange rate, do not want to consume foreign exchange reserves, and do not want to control the capital outflow.
In the current situation, it is impossible to achieve the three goals at the same time, because everyone knows that the Chinese government often has multiple goals, both necessary and necessary. According to such an analysis framework, we can know that at least one tool is needed. This time, the capital outflow and depreciation are not the same as responding to the Asian financial crisis. The Asian financial crisis is that the RMB does not depreciate. At that time, there was no use of exchange rate instruments and no use of reserves, that is, to strengthen management.
The use of the three tools, not to maintain stability against the US dollar, is relatively stable against a basket of currencies, and our judgment on foreign exchange reserves is different from the past. In fact, when we held the Central Economic Work Conference at the end of 2006, we made a very important judgment, saying that the main contradiction of China’s current balance of payments has changed from a foreign exchange shortage to a trade surplus, and foreign exchange reserves have grown too fast. At that time, it was proposed to maintain the balance of payments as an important task to maintain macroeconomic stability. At the end of 2006, there were many foreign exchange reserves. At the beginning of 2014, the Prime Minister visited Africa. At that time, he publicly stated that the reserves were mostly burdens. Based on the judgment of the abundance of foreign exchange reserves, the consumption of foreign exchange reserves to support exchange rate stability is an important tool. Even before the 811 exchange reform, it was the only tool. After the exchange reform, the measures for capital flow management were successively introduced. The management of capital flows has changed somewhat. We have not only blocked measures but also opened measures to speed up the process. The opening of the domestic capital market, especially the inter-bank bond market, the offshore capital can be directly invested in bonds in the banking filing, without restrictions, we relax the restrictions on foreign exchange settlement.
The second measure is not a simple administrative one-size-fits-all management, and the measures taken are macro-prudential measures, which are imposed on far-institutional transactions (2%). Another measure is to strengthen the credit reporting requirements of the counter, window measures. At that time, more than a dozen red-headed documents were issued every day, telling the following that this kind of foreign exchange cannot be bought. There is a lot of strict restrictions on that aspect. There are few red-headed documents issued this time, and there are some verbal persuasion. Recently, the wind direction has changed somewhat. In the further tightening, some further measures for foreign direct investment have recently been introduced.
For the three measures, there is no international criticism of us. Like the issue of capital control, the US Treasury Secretary said that China is a regulated country, and it is not a matter of whether or not to manage it. When talking about foreign exchange reserves, when China does not have so much foreign exchange reserves, many scholars say that there are more reserves. Now that the reserves are not enough, when talking about the exchange rate, he has no objection to the reference basket. He thinks that if you engage in exchange rate marketization, It should be two-way. He hopes that the Chinese government will make a commitment to allow the renminbi to appreciate. This is a foreign view.
In February of this year, the People’s Bank of China clearly announced that we have a new transparent pricing mechanism. The price of RMB against the US dollar is based on the closing price of 4:30 on the previous day. On the other hand, it refers to the exchange rate of the major currencies, the exchange rate of the basket currency. Trend. This formula is a representation of the mathematical formula of the 811 exchange rate announcement. The result is that this year, the overall bilateral exchange rate and multilateral exchange rate adjustment are roughly equivalent. In the first 10 months of this year, the bilateral exchange rate was adjusted by 3% and 4%, and the multilateral adjustment was even larger. It was adjusted by about 6%. At the end of October, the bilateral exchange rate of the RMB fell by 8% and 9%. Since the exchange reform, the Bank for International Settlements The index fell by 8%, which means that our current exchange rate index has been adjusted to the level of September and October 2014. We all know that the appreciation of the US dollar started in the second half of 2014, which led to the passive appreciation of the RMB. The RMB exchange rate has appreciated due to the appreciation of the US dollar. It is overestimated that through the adjustment of last year, the pressure of deterioration and overestimation has been released, which is a dynamic development and evolution, not at the starting point.
As of December 9, the bilateral exchange rate of the RMB has been adjusted by 9% to 10%. Why is this changing? In fact, the monetary policy implementation report in the second quarter explained this change. In the first half of the year, why did the RMB fall against the US dollar? One of the main reasons is to refer to the closing price of the previous day. Since the foreign exchange is basically in short supply in the market, basically the closing price of RMB against the US dollar is in the middle price direction, resulting in the accumulated depreciation of the RMB central price of 2489 points, but The US dollar is not a strong currency. The central parity of the RMB has fallen by 1,194 basis points. Based on such a mathematical formula, the market has greatly increased the trend of the central parity of the RMB exchange rate. There is a price for transparency.
We can see that such a new exchange rate pricing mechanism is relatively stable when the US dollar is weak. When the US dollar strengthens, it faces a test. In the first half of the year, the US dollar index fell by 2.5%, and the RMB against the US dollar. The exchange rate fluctuated between 6.45 and 6.56, deviating from the high point of 6.60 and 6.70 at the beginning of the year. The RMB exchange rate index caused the RMB exchange rate index to fall by about 3% due to the closing price. After the market observation of the operation of the RMB exchange rate in the first half of the year, the market has come to a judgment whether it is such an exchange rate pricing mechanism, embedded non-strategic depreciation, or the RMB is easy to fall, it is difficult to rise, and it is difficult to rise. Market judgment is not subjectively set by the authorities, but if the market forms such an impression, the current exchange rate mechanism is also a big test.
In the second half of the year, due to various reasons, the US dollar was rapidly rising. Especially on November 9, after the US election results came out, the US dollar index exceeded the level at the beginning of the year. On June 24, the second half of the year, after the Brexit referendum, the RMB exchange rate broke through. 6.60, spent five and a half months, the October 10th Fed rate hike expectations, the British Prime Minister's Brexit statement and other reasons, leading to the renminbi to break through 6.70 in two and a half months; after the November 11th US election results came out, the global financial market turned against Turned, the exchange rate between the domestic and foreign RMB passed 6.8, and it took a month to break through 6.83 after three trading days. The market believes that the bottom of the market, from 2008 to 2010, in order to fight the impact of the global financial tsunami, there is a period of RMB against The US dollar broke through in 6.82 to 6.83, but it broke through 6.9 in half a month. At that time, there was a voice saying that the renminbi would break through 7.
Although the RMB exchange rate against the US dollar was relatively quick in the second half of the year, the actual decline in the RMB exchange rate index was much smaller than the bilateral decline. The adjustment of the RMB exchange rate did not operate in full accordance with the new pricing formula. Filtering measures were adopted. The adjustment in the second half was not because The renminbi is weak but strong.
However, as for the direct consequences of the market, we have seen that due to the strong dollar and weak RMB, a rapid adjustment of the RMB exchange rate against the US dollar has been formed. For most of this year, the yen is strong, and the renminbi is depreciating against the yen. In the second half of the year, the renminbi is rising against the yen and falling against the pound.
The first is the new pricing mechanism that increases the transparency of exchange rate formation. The rapid adjustment of the RMB exchange rate in the second half of the year did not cause the market spillover effect caused by the two wave exchange rate adjustments at the end of last year and the beginning of this year, causing fluctuations in the domestic stock market and causing turmoil in the international financial market. The RMB adjustment in the second half of the year did not cause the impact of spillovers, the key is the increase in the transparency of exchange rate formation. Another advantage is that it is now theoretically conducive to improving export competitiveness. Just now this year, the multilateral exchange rate of the renminbi has generally fallen, adjusted to a certain extent, and to some extent released the pressure of RMB depreciation. There is another one that I feel is in us. In financial diplomacy, it is beneficial to adjust the RMB exchange rate and adjust the basket to reduce international doubts about China's competitive devaluation.
I personally think that it also restrains the relevant policies of the US, Europe and Japan to a certain extent. When Japan engaged in monetary stimulus in 2013, it made quantitative and qualitative easing, the yen depreciated, many people questioned Japan, and Americans said that it was not competition for Japan. Sexual value. The yen is stronger this year, Japan wants to intervene, but the Americans do not support it. The Americans say that the strength of the yen is now reflecting changes in the fundamentals of the Japanese economy. It does not support Japan’s intervention. Maybe the Americans have small calculations in their hearts. If the yen also goes. The US dollar is very weak, the US dollar will stand out, and the US dollar will rise even more. He is worried that China will let the renminbi adjust faster. In this respect, the new mechanism has helped China to win the initiative of financial diplomacy.
However, there are also some new problems. For example, our capital outflow now largely reflects the impact of market expectations, resulting in a shortage of capital outflows and a depreciation of the RMB. The first factor is to refer to the closing price of the previous day, which means that the self-enhanced self-realization can be formed, even if there is no change. With such an arrangement, the US dollar will strengthen the RMB against the US dollar and it will have more amplification. There is another simple logic that uses this mechanism to strengthen the weakening of the renminbi. When the dollar is strong, this may put pressure on the renminbi. Under this simple logic, it is easy to form a consistent expectation. Therefore, it is good to talk about transparency, but there are also costs. According to the expectation of the US dollar, we can expect the RMB to be weak against the US dollar. Due to the main domestic declining, it will concentrate on hoarding foreign exchange reserve foreign exchange, resulting in further imbalance of foreign exchange supply and demand.
There are also some problems with this pricing mechanism. When the new pricing mechanism was launched, President Ogawa accepted an interview with the media and mentioned that our pricing mechanism is not able to reflect changes in domestic fundamentals. In the future, macroeconomic data will be introduced to change the exchange rate.
Therefore, the authorities have long understood the problems of the new pricing mechanism. The whole operation is still possible. The result is the pressure of capital outflow, regardless of any reason. (You can say that for reasons of regulation, it can be said that With reference to basket currency adjustment and stabilization of expectations, the pressure of capital outflows has been relieved to some extent this year. In the first ten months, the bank’s long-term foreign exchange settlement and sales deficit was US$270.9 billion, down 40% year-on-year, down 55% from September, and 15.8 billion in October. Some people say that they are out of the country in the form of RMB. We consider this factor in Within the net, the net outflow fell by 35% in October from $44.7 billion in September. For whatever reason, the adjustment of the yuan against the dollar did not expand by an outflow.
In the first 11 months of this year, the total foreign exchange reserves decreased by $278.8 billion, a decrease of $3 billion from the same period last year. Everyone has different views on foreign exchange reserves, but foreign exchange reserves are still small, not absolute objective indicators, but also depends on market perception. The market regards the decline of foreign exchange reserves and the depreciation of the exchange rate as one thing. The decline in reserves is the price clearing. The slowdown in the decline in foreign exchange reserves has played a role in stabilizing the market. Recently, the market has become anxious again. We have seen a net decline in foreign exchange reserves for several months. In particular, foreign exchange reserves fell by $69.1 billion in November. Of course, a considerable part of this is the appreciation of the US dollar. Rate, the decline in the price of US debt has caused the valuation to decrease. The market sees that the foreign exchange reserve resources that the country can use are reduced, which will also cause certain market sentiment fluctuations to some extent.
In the future, there will be a triple situation in the RMB exchange rate. The first one is the benchmark situation. If the market believes that the authorities have the willingness to maintain the stability of the exchange rate, usually the market will not attack the exchange rate. The market can have expectations, but it will not Money can't go. We can look at the typical example. After the exchange rate fluctuations after the exchange reform in 811 last year, it is not that the company has changed the expectation of depreciation. There is still a strong expectation of depreciation. Why is this important reason? From September to December, the RMB is from 6.4 to 6.3, and finally to the level of 811 exchange reform. For companies holding foreign exchange reserves, they must first suffer the loss of spreads, because the US dollar has no interest income and the loss of the exchange difference. So this will cause the company to adjust its financial operations according to market price signals. In this sense, if the market believes that the authorities have the ability to maintain the exchange rate stability, it will not attack your currency.
The good situation is that if the economic fundamentals of our country and abroad improve, the stability of the RMB exchange rate is fundamentally supported. The fundamental improvement in the country is that if everyone can reach a consensus on economic stabilization, the prospects for China’s reform Some improvement means that the domestic economic fundamentals have improved. For various reasons, the US dollar has not been so strong, and certain adjustments have occurred. It is also reflected in the pricing mechanism of ours to reflect the stabilization of the RMB exchange rate against the US dollar.
This is the case from February to April this year. After the Fed raised interest rates at the beginning of the year, the US dollar exchange rate index reached more than one hundred, and then began to fine-tune, the lowest to around 93. Under such circumstances, according to our pricing mechanism, we have just mentioned this year. In the first half of the year, the RMB against the US dollar fluctuated between 6.45 and 6.56. In this case, in fact, with the stabilization of the RMB against the US dollar, the pressure on our capital outflow has also improved significantly during the same period, but why I have no data here because That data reflects both the market's natural adjustments to price signals, and some may be due to the deterioration of the foreign exchange situation at the end of last year, the introduction of management policies, reflecting the impact of regulatory policies.
We used the number at the end of last year in August. The important reason was that there was no strong intervention control at the time, which basically reflected the natural reflection of the market on price signals. The worse case is that everyone agrees that China’s economy has not yet bottomed out in the process of adjustment. Under the downward trend, pressure risks are constantly being released. This may affect everyone’s confidence in the renminbi. Some people even guess that it is not. The government wants to use the exchange rate tool to stabilize growth.
In another bad case, the US dollar will also exert pressure on the RMB exchange rate for various reasons, such as spread-driven driving, due to the risk-driven drive. There is no change in the fundamentals. It is because the market thinks that our pricing mechanism is such that the authorities have a gradual adjustment strategy. As long as the market has such a view, if you do not want to maintain stability, you will continue to attack the currency. Considering the application of the three tools by the authorities, to what extent is it willing to use the price to promote the market, adjust the exchange rate, and to what extent do not want to move the price to consume foreign exchange reserves, if you do not want to move the price and do not want to move the foreign exchange reserves, it is necessary to strengthen the control, this is the emergence A worse situation.
At different times, the judgment of the probability of occurrence of these three situations is different, and I found that it is a process of dynamic evolution. At the end of last year, when I participated in the annual strategy meeting with the market, I talked about three situations, many people. Speaking, the teacher told you that the RMB depreciation. At that time, the RMB was approved to join the basket currency on November 30. At that time, it was expected that the RMB exchange rate would accelerate the adjustment. If the RMB declining continuously and rapidly, the authorities would like to release the pressure through depreciation. Everyone thinks this is The third kind of bad situation has emerged. At present, there is also market anxiety. We have seen that the US dollar has been very strong in recent times. The adjustment of the RMB against the US dollar is also very fast. Does it also cause such bad results? In fact, there is no unified answer to what is the reasonable level of the RMB exchange rate. I don’t think the market knows the market. The government does not know. The biggest problem now is whether the government and the market are caught in a currency, and the market is impossible. Being balanced in the law, the market law cannot be stabilized in the equilibrium law, the market The law must be floating around the law of equilibrium. Now there is a big problem. The government has always stressed that the renminbi has no basis for depreciation and there is no basis for long-term continuous depreciation. But this is a theoretical issue. The market does not look at what the government says. It depends on how the government does it, so it is now facing a great test.
Regarding foreign exchange reserves, it may be a concern for everyone. During the Asian financial crisis, I mentioned that the government did not support exchange rate stability by consuming foreign exchange reserves. Therefore, in three years, no one has ever discussed 140 billion foreign exchange reserves. Enough, we are consuming nearly one trillion now. Everyone is not enough to settle the accounts every day, but the key depends on what you do with it. Our reserves far exceed international standards. Compared with 2014, the solvency is improved, and the foreign exchange reserves are not enough. Fundamentally, it is not a complete objective indicator that is the subjective feeling of the market. It is equally important to maintain reserves and maintain exchange rates. It has also been suggested that the traditional indicators for foreign exchange reserves are sufficient, but the use of new indicators is not enough, and some people use foreign exchange reserves to reflect conflicts with M2. There is no theoretical or practical proof of foreign exchange reserve ratio. M2 is a good indicator. We can see that Brazil, India and Russia are three emerging economies. Their foreign exchange reserves are 50% to 90% more than M2, but the currencies of these countries have long been weak currencies. When the market is strong, the foreign exchange reserve is far from the M2 to 28%, far from the 50% level. Not to mention the mature foreign exchange market, no one looks at the foreign exchange reserve than the M2. The yen is a strong currency this year, but you can see In the first eight months of this year, its foreign exchange reserves fell by 0.3% compared with M2. Indeed, under the current foreign exchange market conditions that the market is expected to dominate, the foreign exchange market may have a multi-equilibrium situation. When the market is generally bearish, everyone chooses Sex believes in bad things, this is the state that the market is facing.
There are several conclusions for everyone to share:
The first is that the economy is stable and financial stability is the prerequisite for currency stability. The Asian financial tsunami is a very typical example. China has experienced short-term capital outflows. In the first three quarters of 2008, capital still flowed in. In the fourth quarter of 2008, the capital outflow in the first quarter of 2009, and the short-term external debt in the fourth quarter. We reduced more than $100 billion. At that time, we set out to study the plan and deal with the concentrated outflow of capital. We rebounded slightly in the first quarter of 2009 to 6.4%. We are back to the trade surplus, capital inflows, and the pressure on the renminbi to face appreciation again. Therefore, economic stability is the premise of currency stability. Financial stability is also a prerequisite for currency stability. Many people say that we put the house prices up and left the money. The idea of ​​supporting the stability of the exchange rate in the territory is very risky. If you break the real estate bubble, as long as the bubble breaks sooner or later, it may stabilize the exchange rate in the short term. However, if the long-term bubble breaks, it will also exert pressure on the foreign exchange market, which is not conducive to The exchange rate is stable for a long time.
The second is that the three tools of exchange rate, intervention, and control are not absolutely good or bad. There is no painless solution. The key is to set the target early, and which one to protect. After that, the means and objectives should be matched. The key point is that as the government, whether it is moving or not moving, it is the first move. On the basis of analysis, we should make a response plan according to the tools we have. If the situation is prepared, the government should respond to the accident. With the law, you are confident that the market has confidence.
The third is that the weaker pricing mechanism, such as the weaker US dollar, is more stable. The key is whether the mechanism is sustainable. The key is whether it can withstand the test of extreme markets. If the bad situation is not sustainable, if it is not sustainable, there should be a plan ahead. The negative feedback mechanism is currently the test period.
Provide some references for judging the impact of cross-border capital flows and the fundamentals of the RMB exchange rate trend. The first is that the United States is not as good as everyone thinks, and China is not that bad.
Second, judging China's capital outflow comes from two channels. One is that the asset side is the debt side, and the debt side is the debt repayment. This end pressure has basically been released. Domestic enterprises have begun to re-debt, we see June. At the time, our foreign debt balance fell back from the end of March. We saw that enterprises also began to re-borrow and re-increase cross-border foreign currency financing from March. There are also overseas institutions that have begun to reconfigure domestic RMB assets. Like the stock asset bond market in the second and third quarters, our pressure on the debt side has basically eased. The key is from the asset side. Due to lack of confidence and other problems, domestic enterprises are caused. In the allocation of foreign exchange assets and overseas assets, the country is encouraged by the normal foreign investment, but simply understanding the diversification of assets is equivalent to speculating foreign exchange. The exchange rate depreciation is expected to lead to the diversification of asset allocation, and the authorities need to guide.
The third judgment of capital outflow will become the new normal in the future. Because everyone knows the goal of RMB exchange rate reform, we must realize the free floating of the RMB exchange rate. For the central bank, it basically withdraws from the foreign exchange market intervention. The trade surplus capital is a deficit, and the trade surplus is more Big, the more capital flows, but it does not mean that it will depreciate. We cannot simply use the market value of trade to explain depreciation and appreciation. We see that the depreciation pressure in the market is very high. Compared with the Asian financial crisis, the current pressure is not an order of magnitude at that time. At that time, there was a one-year non-deliverable payment of RMB in the Hong Kong market. After one year, the renminbi fell below 7. At that time, the renminbi was short-selled overseas. They were strictly controlled. After they attacked the Hong Kong dollar, after the 811 exchange reform, most of the Hong Kong dollar was between 7.75 and 7.76 against the US dollar. To stabilize expectations.
The fourth judgment, now our main challenge is the expectation of consistency, leading to the emergence of a unilateral market environment, how to break the expectations of consistency, I personally believe that the key is the change in the middle price. In theory, our capital outflow pressure does not come from the loss of trade competitiveness leading to capital outflow, but from the diversification of assets. Asset diversification will not pay too much attention to trade-weighted exchange rate movements. This may be I have to report to the authorities that need to pay attention to and seriously think about it. I welcome everyone to criticize and correct.
Enter [Sina Finance and Economics Unit] Discussion
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