This year *** will continue to appreciate

As the traditional Chinese Year of the Rabbit approaches, the renminbi exchange rate curve suddenly resembles a very sensitive rabbit. At the end of the year and the beginning of the year, the renminbi exchange rate against the U.S. dollar had seen the "ten consecutive rises" since 2005, the highest since the exchange rate reform. Although the recent two trading days have come down, under the background of inflationary pressures, policy tightening, and international pressures, it is expected that the renminbi will continue to appreciate this year, and even in the short term, there will be a sudden and continuous rise of the "rabbits". Some experts expect the annual appreciation of the US dollar will be about 5%, the volatility may exceed 0.5%.

On January 6, the renminbi exchange rate against the US dollar was reported at 6.6322. On January 4th, the central parity of RMB against the US dollar was reported at 6.6215, a new high since the exchange reform in 2005, and the RMB appreciated for the 10th consecutive trading day. Since the central bank resumed exchange reform in June last year, the yuan appreciated 3.6% against the US dollar last year. This short-term jump, in addition to domestic inflationary pressures and weaker US dollar, non-economic factors such as pressure from the United States (it is reported that Brazil is also pressing the yuan) are closely related.

In the upcoming Year of the Rabbit, it is expected that the renminbi will not be able to escape the pressure of short-term non-economic factors and suddenly appear to be in a scenario of “ten consecutive rises,” thereby promoting the renminbi to continue on the road to appreciation.

Inflationary pressure is the most important factor in the appreciation of the renminbi. Recently, from the central economic work conference to the central bank’s working conference, the stabilization of prices and the prevention of inflation have all been placed on the prominent position of the red tape. In order to deal with the crisis, the central bank released a huge amount of money in the previous two years. The growth rate of M2 far exceeds the growth rate of GDP. The consequences of inflation caused by the hyper-currency of money have already appeared. In fact, this is also the most important reason for the central bank to tighten monetary policy. In November last year, CPI rose by 5.1% year-on-year, hitting a new high of more than two years, and the annual target will exceed 3%. Li Daokui, a member of the central bank’s monetary policy committee, recently predicted that the CPI in 2011 will increase by about 4%.

Policies are the direct thrust of the appreciation of the renminbi. For example, when the central bank tightened its monetary policy in 2007, the RMB appreciated sharply. From the second quarter to the fourth quarter of the year, the RMB appreciated by 1.5%, 1.3%, and 2.8% against the US dollar respectively. By the first quarter of 2008, the increase was more than 4%. . Last year, the central bank began to gradually tighten the monetary policy appreciation through various tools, formally bid farewell to the same direction as the Fed and other central banks during the crisis, and then parted ways. With the expectation of continuing to raise interest rates, there seems to be no reason for the renminbi to be unimpressed by foreign exchange traders, and the continued weakness of the US dollar is also reasonable.

Therefore, inflationary pressures - policy tightening - the appreciation of the renminbi has become a linked phenomenon. Inflation means that purchasing power declines, and the appreciation of the renminbi can offset inflationary pressures to a certain extent, which is what most traditional economists talk about. Hu Xiaolian, deputy governor of the Central Bank, once said that a flexible exchange rate is conducive to curbing inflation. Of course, precisely because of inflation, experts predict that the real effective exchange rate under the nominal appreciation of the renminbi exchange rate will not change much and will remain stable.

The exchange rate itself is the price of a country’s currency against other countries' currencies. The appreciation of the renminbi is closely related to external factors such as international trade and politics. In particular, the renminbi will remain one of the international focuses until the renminbi exchange rate is fully floated. It is reported that US President Barack Obama will press China and promote RMB appreciation. The correlation between the trade imbalance between China and the United States and the RMB exchange rate is not straightforward, but there are radical US Congressmen and scholars who believe that the RMB should appreciate by more than 20% against the US dollar.

The just-concluded central bank work conference conveyed information such as “giving play to the role of market supply and demand in exchange rate formation” and “enhancing exchange rate flexibility”. Although it is still tinkering with the regulatory exchange rate mechanism, it gives investors enough room for imagination.