Transcript the fixed central parity rate - Initiative for Policy Dialogue

China’s exchange rate reform
Yu Yongding
24 August 2015
IWEP Beijing
The RMB exchange rate before 11 Aug:
from under valuation to overvaluation
the fixed central parity rate, market rate, and the gap
贬
值
The movement of the exchange rate
after 11 Aug
The daily fix and the closing price on previous day
1.9%
depreci
ation
Closing
price
Daily
fix on
12 Aug
Undervaluation or overvaluation?
• Long-run Current account: undervalued
• Short-run Capital account: overvalued
• In the first half of 2015
– Current account surplus: 152.17 bil USD
– Capital account deficit: 161.92 bil USD
– Reduction in FX and Error+ omission: 124.8 bil USD
• Twin surpluses no longer existent, capital account
deficit>capital account deficit
• Devaluation pressure and devaluation
expectations
Not only in China
• Analysts calculate that nearly $1tn of capital
has flowed out of emerging markets over the
past 13 months — roughly double the
outflows during the financial crisis — which
could threaten growth in EM economies.
• ft
Deflation and debt spiral?
•
•
•
•
•
2012 q2 GDP growth rate below 8%
PPI has been falling for 41 month
CPI still positive but below 2%
1997 PPI started to fall. 8 months later CPI entered the negative territory.
Prolonged deflation between 1997 to 2002 was attributable to the lack
exit mechanisms for failing enterprises
• Recovery in 2002, due to the eventual elimination of overcapacity,
housing construction boom and rapid increasing in exports (two engines)
• Has the economy reached the bottom? Growth of industrial profitability
has turned positive in the second quarter, other indicators show sign of
improvement--destocking, PMI and so on. But it could be a blip only.
• I tend to think this round of slow-growth may last longer than expected
(overcapacity, high-leverage, new growth engines?)
A simulation of corporate/GDP
trajectories
%百分比
400
350
300
250
200
150
100
50
0
2014
2015
2016
2017
2018
2019
2020
n=7%
2021
n=6.5%
2022
2023
2024
2025
2026
n=6%
Capital efficiency, growth, profitability, interest rate, inflation，
capital market development
2027
2028
The short term policy responses
• Further loosening of monetary and fiscal
policy
• There are still room for fiscal expansion
• Capital market ?
– The bungled stock exchanges
– More IPO?
• Exchange rate policy ?
– Contradicting to long term objectives
– Foreign debt of corporates (how large it is?)
Risks, and policy options
•
•
•
•
RMB devaluation expectations
Capital outflows
Self-fulfillment
Reform of the exchange rate regime lags behind
capital account liberalization
• There are money options (from slow to radical
changes). Maybe, China should choose liberalize
the exchange rate in one-go, while tightening
what China still can tighten with regard to capital
account to prevent a stampede in capital exodus
为了SDR?
“无论在香港还是伦敦，银行家和金融界人士无不期待人民币正式成为储备货
币。届时，涉及人民币的交易便会达到数万亿元，他们就可以从中受益。”－沈
联涛
“可自由使用货币” ？
Thanks