Recently, you may have found a phenomenon: the yuan in your wallet, in exchange for dollars, is becoming less and less. This is due to the constant decline in the exchange rate of the renminbi against the united states dollar. Since 17 may this year, the renminbi has broken the psychological threshold of “7”, falling by 7. 2 in just one month. This was the lowest level since late november last year。
So, why is the renminbi devalued? How does this affect our economies, our businesses and our lives? Will the renminbi continue to depreciate in the future? What are we going to do about it? Let's see。
I. Reasons for the drop of 7. 2 yuan exchange rate
The exchange rate is the exchange rate between the currency of one country and that of another. Changes in exchange rates are influenced by many factors, such as the economy, policies, market demand and supply. Simply put, if a country's monetary demand increases, its value increases, i. E., appreciation; and, conversely, if a country's monetary demand decreases, its value decreases, i. E., devaluations。
Currently, the decline in the exchange rate of the renminbi against the united states dollar is due mainly to the significant increase in the dollar. Why is the dollar rising? This is mainly due to the repeated interest rate hikes of the united states central bank (df) to control inflation. The increase in interest rates meant higher return on interest and assets in the united states financial markets, which attracted many international flows to the united states market. As a result, demand for the united states dollar increased and the united states dollar appreciated。
The central bank of china (the people’s bank) did not follow the fed’s interest rate hike. On the contrary, the central bank of china has adopted policy measures such as interest-rate and quota-cutting measures to stabilize economic and financial markets. The reduction in interest rates and allowances meant lower interest and asset returns in chinese financial markets, which reduced the incentive for international flows to the chinese market. As a result, the demand for the renminbi was reduced and the renminbi depreciated。
In addition to this, there are other factors that affect the rmb exchange rate. For example:
Although china's economy has remained stable and favourable, it still faces some internal and external challenges and uncertainties. For example, insufficient domestic market demand, high structural problems, real estate bubble risks, etc. In the past few years, there have been many cases of international trade frictions, new epidemics, geopolitics, etc. These will affect investors ' confidence in china's economic prospects and thus the demand for the renminbi。
The foreign exchange market is an open market, influenced by many speculators. Speculators trade different currencies based on expectations of future events, thus affecting exchange rate fluctuations. For example, if speculators expect the dollar to continue to appreciate, they will sell the renminbi and buy the dollar, thereby contributing to its devaluation; and vice versa。
The central bank of china has adopted a “managed floating exchange rate system” in managing exchange rates. This means that exchange rates are largely determined by market demand and supply, but central banks will also adopt policy measures to regulate the range of exchange rate fluctuations in a timely manner, depending on the economic and financial situation. For example, central banks can influence exchange rate movements by adjusting foreign exchange reserves, foreign exchange risk reserve rates, intermediate prices, etc。
Impact of the drop of 7. 2 yuan exchange rate
Changes in the exchange rate of the renminbi have had some impact on our economies, our enterprises and our lives. The impact is both positive and negative, both direct and indirect. Overall, the devaluation of the renminbi is favourable to exports and unfavourable to imports; to foreign currency earnings and foreign currency spending; and to economic growth and inflation。
The devaluation of the renminbi could increase the competitiveness and attractiveness of chinese goods in international markets. This would increase exports, increase trade surpluses and promote economic growth. At the same time, the devaluation of the renminbi could attract more foreign investors to china。
This would increase foreign exchange earnings, increase foreign exchange reserves and stabilize the balance of payments. However, the devaluation of the renminbi also increases the cost of imports and the price of imported goods and raw materials. This would reduce imports, reduce trade surpluses and stifle economic growth. At the same time, the devaluation of the renminbi will push up domestic prices, leading to rising inflationary pressures。
Iii. Outlook for the future evolution of the renminbi exchange rate
Looking ahead, the rmb exchange rate will be affected by multiple factors, the most important of which is the differences in the economic cycles of the central american and central american economies and the fragmentation of monetary policy. Based on the projections of some agencies and experts, we can analyse the following:
Economy:
The global economy is going to grow in the wrong direction, and europe and the united states are becoming more likely to experience recession and may fall into a “high inflation, high interest rates, low growth”. China’s economy is expected to continue for the better, driven by the optimal use of disease control measures. This means that china’s economy is largely supported by the renminbi exchange rate, while the united states economy is largely burdened by the dollar exchange rate。
Currency:
The interest rate hike in the countries of europe and the united states will enter the second half, and the dollar will not be sustainable. The central bank of china, on the other hand, will be flexible in its application of a variety of policy instruments, in accordance with the economic and financial situation, and will maintain sound monetary policy. This means that there will be some reduction in the us-china spreads and some reduction in external pressure on the renminbi exchange rate。
Market:
The continued flow of external capital into domestic financial markets is expected to lead to a general balance of payments in china. Domestic markets are also expected to warm and investor sentiment will be reduced。
Policy:
The central bank of china will continue to adopt a “managed floating exchange rate regime” and, in the light of the economic and financial situation, adopt policy measures to regulate the range of exchange rate fluctuations in due course. This means that the exchange rate of the renminbi will not be subject to significant and sustained depreciation or appreciation, but will fluctuate in both directions at a reasonable level of equilibrium。
Iv. How should we cope
How should we respond to changes in the renminbi exchange rate? Here we offer some suggestions:
For exporting enterprises, the opportunities for devaluation of the renminbi should be seized to improve export competitiveness and earnings, while at the same time taking care to avoid exchange rate risk by hedging against exchange rates, futures contracts, options contracts, etc。
For importing enterprises, care should be taken to control import costs and prices and to avoid overdependence on imported goods and raw materials, while seeking more import alternatives and suppliers and increasing import diversification。
For students and tourists abroad, exchange times and amounts should be rationalized to avoid exchange rates at a high level, and care should be taken to choose the appropriate means and channels of payment and to reduce transaction costs。
For ordinary investors, appropriate foreign exchange investment products and strategies should be selected according to their own risk preferences and investment targets, without blindness or speculation. 12 attention should also be paid to diversifying the portfolio and reducing the impact of exchange rate fluctuations。
