On the evening of December 9, People's Bank of China released a message: In order to strengthen the foreign exchange liquidity management of financial institutions, starting from December 15, 2021, the reserve ratio of financial institutions foreign exchange deposit will be raised by 2 percentage points, that is, the reserve ratio of foreign exchange deposits will be increased from the current 7% to 9%. It is worth noting that this is the second time that the People's Bank of China has raised the foreign exchange reserve ratio this year. On May 31 this year, the People's Bank of China decided to increase the foreign exchange deposit reserve ratio from 5% to 7% starting from June 15, 2021. In other words, since the beginning of this year, the foreign exchange reserve ratio has been raised by 4 percentage points.
Looking further, the last time the central bank raised the foreign exchange reserve ratio back to 14 years ago. After fourteen years, what are the reasons why the central bank raised the foreign exchange reserve ratio? Under normal logic, the dollar index shows a reverse relationship with the RMB against the US dollar exchange rate, but it has both risen recently. What are the reasons? After "upgrading the accuracy", what is the trend of RMB exchange rate ?
What is the foreign exchange reserve ratio?
foreign exchange deposit reserve ratio refers to the ratio of the foreign exchange deposits absorbed by financial institutions that need to be paid in central bank as reserve, which is similar to the conventional deposit reserve ratio .
The conventional deposit reserve refers to the deposits paid by financial institutions to ensure that customers need to withdraw deposits and liquidate funds. The proportion of the deposit reserves required by the central bank to the total deposit amount is the deposit reserve ratio.
The higher the deposit reserve ratio, the more money the bank needs to pay, and the less loans it can create accordingly; on the contrary, the lower the deposit reserve ratio, the less money the bank needs to pay, and the more loans it can create.
This means that when the central bank raises the reserve requirement ratio for foreign exchange deposits, the ability of financial institutions to provide foreign exchange loans will be weakened, and the foreign exchange supply will also decrease accordingly, ultimately increasing the foreign exchange rate and lowering the RMB exchange rate.
In October 2004, August 2006 and May 2007, the central bank raised the foreign exchange deposit reserve ratio three times, from 2% to 5%, each time increasing by 1 percentage point.
After another adjustment, it took 14 years. In May this year, the central bank raised the foreign exchange deposit reserve ratio from 5% to 7%; this time the central bank took action, further raised the foreign exchange deposit reserve ratio from 7% to 9%. What is the impact of
"upgrading accuracy"?
data shows that as of November 2021, the foreign exchange deposit scale of financial institutions was US$1.02 trillion, and the foreign exchange deposit reserve ratio was raised by 2 percentage points, which means that about US$20 billion of foreign exchange liquidity will be directly recovered. Experts said that compared with the current spot foreign exchange trading volume of nearly US$37 billion/day and the total foreign exchange trading volume of US$90 billion/day, the impact of is relatively limited.
. From the actual performance, after the foreign exchange deposit reserve ratio was raised in the past four times, the scale of foreign exchange deposit and loans of financial institutions was not significantly affected, and the overall trend was still maintained. After the increase in May this year, the RMB exchange rate only depreciated slightly in the short term, and then continued to appreciate significantly.
China Financial Forum Forum (CF40) and chief analyst of Guosheng Macro, Xiong Yuan, said that from April to May this year, the spot exchange rate of RMB against the US dollar appreciated from 6.57 to 6.36. On May 31, the central bank announced the first increase in the foreign exchange deposit rate , and the exchange rate phased turning point appeared, turning into depreciation from June to July; and since late August, the RMB has started the appreciation process again. As of December 9, it has risen from 6.5 to 6.35, setting a new high in more than three years.
Therefore, at present, the signal significance of the central bank's move is greater than the actual effect. The main purpose may be to strengthen the expectation management of - By adjusting the US dollar liquidity in the foreign exchange market, it alleviates the pressure of excessive appreciation of the RMB in the short term, and avoids the market's irrational bullish unilateral appreciation of the RMB. After all, the continuous rise in RMB exchange rate unilaterally is likely to put operating pressure on domestic companies.Especially for small and medium-sized export companies, the rapid appreciation of the RMB often brings exchange losses and a decline in export competitiveness.
Mingming, deputy director of CITIC Securities Research Institute, wrote an article on this issue. In the previous eighth working meeting of the National Foreign Exchange Market Self-Discipline Mechanism, the central bank had proposed that the "deviation degree is proportional to the force of correction". This time, the central bank took decisive action after the rapid appreciation of the RMB, and further released the signal that the policy level will continue to strengthen the management of exchange rate expectations.
htmlOn the night of November 9, the offshore RMB exchange rate fell by more than 300 points, falling below the 6.35, 6.36, 6.37 and 6.38 marks continuously. On December 10, the RMB mid-price was 6.3702, down 204 points.
Logic of both the RMB exchange rate and the US dollar index rise
Under normal logic, the US dollar index and the RMB exchange rate against the US dollar show an inverse relationship: the US dollar index is strong, the RMB weakens; the US dollar index is weak, the RMB strengthens. For a long time, the US dollar index has indeed shown such a close relationship with the RMB exchange rate against the US dollar.
Since the beginning of this year, as the market expectations of the Federal Reserve's monetary policy shift continue to increase, and the Federal Reserve announced that it will reduce its bond purchase plans from mid-November, the US dollar index has shown an upward trend. However, the recent exchange rate of RMB against the US dollar has not fallen but risen, and both of them have risen. How do you understand?
In the view of Wei Zhichao, member of the CF40 Youth Forum, chief economist and managing director of Shouchuang Securities, the same rise in the RMB exchange rate and the US dollar index is the result of the combined effect of three factors: One of them is the United States interest rate hike expected rises This led to the strengthening of the US dollar, and the developed economy depreciated more against the US dollar; , the second , the epidemic in Europe caused the depreciation of the euro , and the euro accounted for a large proportion of the US dollar index; , the third , the recent significant increase in China's trade surplus has led to a stronger RMB exchange rate.
The latest data released by the General Administration of Customs on the 27th showed that in the first 11 months of this year, my country's total import and export value of goods was 35.39 trillion yuan, a year-on-year increase of 22%, not only exceeding the scale of the whole year last year, but also approaching three times the global average. Among them, exports were 19.58 trillion yuan, an increase of 21.8% year-on-year.
In fact, The global epidemic situation is still not optimistic enough, and objectively supporting the RMB exchange rate . On the one hand, China's export situation is still improving and its share is expected to remain high. Since mid-October, the Omicron virus has broken out and spread to many countries. The global epidemic situation has deteriorated again, which has undoubtedly further boosted the RMB's upward trend. On the other hand, from the perspective of capital projects, this year, foreign direct investment maintained an inflow trend, and overseas funds continued to flow into the domestic bond market and stock market.
In addition, in Xiong Yuan's view, the easing of Sino-US relations has also become a main reason for the recent continuous appreciation of the RMB.
Since the "8·11 exchange rate reform " in 2015, the exchange rate of the RMB against the US dollar and the US dollar index have basically changed completely inversely. The two have only had a relatively obvious divergence twice. The first time was from the beginning of 2019 to April 2019, when the US dollar index rose 2.4%, and the RMB against the US dollar appreciated 2.8%; the second time was from the beginning of October 2021 to the present, the US dollar index rose 3.1%, and the RMB against the US dollar appreciated 1.7%.
Xiongyuan analyzed that the two divergences occurred against the backdrop of easing between China and the United States - in early 2019, China and the United States were close to reaching the first phase of the trade agreement; in early October this year, U.S. Trade Representative Dai Qi delivered a speech saying that the exemption process of tariffs against China would also affect market sentiment and expectations to a certain extent.
How will the RMB exchange rate move in the future?
In the short term, after the central bank raised the foreign exchange reserve ratio for the second time this year, the RMB exchange rate against the US dollar will likely return to the two-way fluctuation trend.CITIC Securities expects that the current peak of corporate exchange settlement at the end of the year, and the adjustment range of the RMB exchange rate may be slightly weaker than the previous round. After the adjustment, the RMB exchange rate will still face a situation of multiple long and short factors comparing with each other.
Looking back, on the one hand, the Omicron virus is quite infectious, and its destructive power is likely to be far higher than Delta virus . The deterioration trend of the global epidemic situation may last for several months. But on the other hand, the RMB is also facing certain depreciation pressure -
First of all, under the complex situation, the Chinese economy is under the downward pressure, with my country's currency The space for easing is further opened, and the RMB exchange rate may be difficult to remain strong;
Secondly, looking at the whole year next year, the global epidemic is likely not to continue to worsen. If the global epidemic improves and the recovery of overseas production capacity leads to a slowdown in external demand, my country's exports may slow down, and the current account surplus may narrow;
In addition, the gradual normalization of the Federal Reserve's monetary policy also supports the strengthening of the US dollar, and non-US dollar currencies will face certain depreciation pressure.
Above analysis, the RMB exchange rate is expected to remain strong in the future, but looking at the whole year of 2022, it is still necessary to draw a question mark whether the support for the continued appreciation of the RMB exchange rate is sufficient. █
