CCTV News: On August 5, the RMB exchange rate "breaks 7". This was originally a natural reaction of the market, but it became the "intellectual demon" of the US government. The U.S. Treasury Department announced that it would list China as a so-called "transfer rate manipulator." What is the real intention and intention of the United States behind this farce?
1. What is the exchange rate?
exchange rate is the ratio of one country's currency to another country's currency. If the currency of Country A increases its value than the currency of Country B, then the people of Country A can buy more goods and services of Country B using the same amount of currency of Country A. The same is true when applied to the country. If a country appreciates the currency of another country, it is beneficial to imports and is not conducive to exports; if a country depreciates the currency of another country, exports will be encouraged and imports will be frustrated.
2. Is China the so-called "transfer rate manipulator"?
According to the United States' own standards, the "Trade Convenience and Trade Promotion Law" promulgated in 2015 stipulates that determining whether a country or region has exchange rate manipulation should meet the following three points at the same time:
first, a large amount of trade surplus with the United States : The trade surplus with the United States exceeds US$20 billion.
Second, huge current account surplus: current account surplus exceeds 3% of GDP.
Third, continuous one-way intervention in the foreign exchange market: repeated net purchases of foreign exchange, and the net purchases in 12 months exceeded 2% of GDP.
If calculated according to the standards, China cannot be called a "transfer rate manipulator" because China has and only the first one. The IMF's view also points out that the RMB exchange rate generally conforms to fundamentals.
So, the United States added two more. First, "China has long been making currency undervalued through continuous and large-scale foreign exchange market intervention." The second is that the People's Bank of China "openly acknowledges that it has extensive experience in trading exchange rates and is ready to continue to do so." However, the original words of the People's Bank of China are saying, "It has accumulated rich experience and policy tools, and will continue to innovate and enrich the regulatory toolbox, and take necessary and targeted measures to address the possible positive feedback behaviors in the foreign exchange market." Looking back at history, whether it is in the Asian financial crisis in 1997, the global financial crisis in 2008, and the Sino-US trade dispute since 2018, China has always insisted on not engaging in competitive devaluation. Most of the tools accumulated by the People's Bank of China over the past few years have been to defend the currency rather than devalue it.
3. Is the depreciation of the RMB a natural reaction to the market?
American financial experts pointed out in an interview with Bloomberg that after the United States announced an additional 10% tariff on US$300 billion of Chinese goods imported to the United States, the RMB "breaking 7" was completely a natural reaction to the market.
In the last century, the United States put pressure on the Japanese yen exchange rate in order to improve the trade deficit with Japan. However, not only did the Japanese economy become a victim, but the US trade deficit with Japan has not changed significantly. Now that the United States has re-used the same trick, China will no longer be able to take the United States' hook.
4. Who is the United States’ extreme pressure?
In the Japan-US trade war between 1950 and 1990, the yen was forced to appreciate rapidly, and domestic policy easing and financial liberalization . The U.S. trade deficit with Japan has not improved significantly, while Japan has experienced a bubble burst after a surge in housing prices and stock markets.
learns from history. To engage in "competitive devaluation" is a matter of both fighting and both sides will be hurt. China will not be hooked by the United States, repeating Japan's mistakes, and allowing the United States to "use the same trick again."
As for the impact, this behavior of the United States seriously undermines the international financial order and inevitably causes turmoil in the financial market. The domestic economy of the United States also faces comprehensive risks.
htmlOn August 6, the Ministry of Commerce of China issued an announcement stating that relevant Chinese companies suspended the procurement of new American agricultural products. Chipi Duval, president of the American Federation of Farmers, said that China's approach has hit American agriculture hard, and the hard days of thousands of American farmers will continue to decline.5. What is the purpose of the United States to carefully select time nodes?
If that is the case, why did the United States choose to list China as a exchange rate manipulator at this time node? What is its next step?
Zhang Monan, chief researcher at the US and Europe Institute of China Center for International Economic Exchanges, said, "On the one hand, it may be a campaign commitment to Trump's first come to power."On the other hand, in the case of a lack of planning for Sino-US trade war, the United States may hope to further promote exports and boost the economy through a weak dollar. At this moment, the United States listed China as a "transfer rate manipulator" is also in a time window. Further pressure on China during the Chinese negotiations also opened the next policy toolbox for the United States, breaking the situation and further appreciation of the RMB. It is possible to further put pressure on China by imposing tariffs or so-called "anti-tax rate subsidy tax". It is also possible to put pressure on China by restricting financing or restricting some financial channels. It is not ruled out that the US government will conduct additional reviews on China's macroeconomic policies or related exchange rate policies through the IMF platform. Last point, because there are some aspects of opening up financial markets and opening up capital accounts in China's negotiations, it is not ruled out that the United States further forced China to fully open up its financial markets and capital accounts through the label of "exchange rate manipulators" like the South Korean government in 1988.
6. What are the consequences of the United States’ random label of “exchange rate manipulator”?
The escalating economic and trade frictions hit the US economy while seriously hindering the development of the global economy and arousing widespread concerns in the world.
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