The Dollar Depreciation led to RMB appreciation
Since March this year, with global investors in the financial crisis and concerns about the prospects for the world economy somewhat eased, the U.S. dollar as a “turbulent times” investment safe haven status has declined, the dollar out of the financial crisis, a wave of contrarian rally Quotes come to an end and instead continued the pre-crisis long-term depreciation trend.
Recently, reflecting the U.S. dollar against other major currencies parity of the “dollar index” hit a 14-month history of low.
Depreciation of the dollar will intensify the pressure of RMB appreciation, and China’s huge foreign exchange reserves, the value of an impact. Depreciation of the dollar in the commodities markets will trigger a series of chain reactions and aggravate China’s imported inflationary pressures. How to deal with depreciation of the dollar has become China’s economy is facing a big challenge.
Is difficult to reverse the trend of dollar depreciation
In the current full-blown international financial crisis before the dollar up to 2078 continue to lower the overall time. While the financial crisis, global financial markets swooning, investors need to hedge for a large number of buying dollar-denominated assets to promote the adverse economic rebound in U.S. dollars. However, as the world economy is becoming increasingly apparent stabilization of the momentum of recovery, investors dollar “hedging demand” is rapidly declining trend in short-term depreciation of the dollar is difficult to reverse.
First of all, although the United States is the world’s largest economy, but as the birthplace of the current international financial crisis and disaster areas, its economic prospects for recovery is unknown, and even some analysts predicted that the United States may become all the major economies, the pace of recovery in the economy the slowest of the economy, which adversely affected investor confidence in the dollar.
Second, it is precisely because the U.S. economic recovery uncertain prospects, the Fed has recently sent out a message that will not soon raise interest rates. Currently, the U.S. federal funds rate, which banks on overnight loans, zero to 0.25%, at a historical low point, in all the lowest among major economies. U.S. interest rates low, it will directly affect the U.S. dollar exchange rate.
Finally, the U.S. “twin deficits” problem has not been fundamentally resolved, the U.S. Government will not sacrifice their own interests to maintain a strong dollar. Only the U.S. government budget deficit, for example, a lot of money because of the need to “rescue the market,” the U.S. federal government budget deficit for fiscal year up to 1.4 trillion U.S. dollars, the equivalent of the U.S. gross domestic product by 10%. If you include the Obama administration is pushing health care reform, spending, many investors are worried that the U.S. budget deficit is sustainable, which would adversely affect the exchange rate against the U.S. dollar.
The United States government, laissez-faire attitude to the depreciation of the dollar is because the depreciation of the dollar will stimulate U.S. exports to the United States economy.
Depreciation of the dollar severely affect China’s
U.S. dollars in today’s world economy and the international financial system played an important role, the dollar continued to depreciate, it will trigger a series of problems, the Chinese economy will thus face a tremendous challenge.
Jan. 15, the U.S. Treasury in the semi-annual report, not China as a currency manipulator, but the intensity of the yuan appreciation was even greater than in previous years. As the U.S. economy gradually stabilized, the United States in the international community led to a re-appreciation of the RMB to force the action, and the RMB exchange rate issue with trying to re-balance the world economy linked to the so-called promotion of world economic balance, strong and sustainable growth, under the banner of wantonly oppressed appreciation of the RMB. It is in the expected appreciation of the renminbi, the international “hot money” into China is accelerating and, to some extent, supported by the Chinese stock and property markets asset prices.
As the world’s major reserve currency and many commodities denominated in the currency trading, the dollar depreciation has been crude oil and other commodity markets triggered a chain reaction, which is an oil importing country like China is particularly adverse. The recent depreciation of U.S. dollar, coupled with investor speculation in China’s economic recovery may stimulate the world demand for crude oil in the international market price of oil has close to 80 U.S. dollars a barrel mark, rose to a high point of the year.
In addition, China is still iron ore, copper and other metals of the main importing countries. Depreciation of the dollar, it will directly lead to dollar-denominated prices of these commodities, and enhance China’s import costs.
Continuous depreciation of U.S. dollars back to China’s huge foreign exchange reserves, increasing the value of pose some challenges. China’s foreign exchange reserves, most of the United States government bonds or other dollar-denominated assets, depreciation of the dollar will directly bring about the loss of the value of China’s foreign exchange reserves. This is why, in the current international financial crisis, Chinese officials have repeatedly urged the U.S. side expressed the hope that the other side adopt responsible macro-economic policies to ensure financial sustainability, ensure that China’s holdings of U.S. dollar assets.
China how to deal with depreciation of the dollar
In view of short-term depreciation of the dollar is unlikely to reverse the trend, the Chinese how to deal with the enormous challenge of depreciation of the dollar is becoming the focus of attention of various parties. From an international perspective, the depreciation of the dollar and the RMB exchange rate issue is closely related to a right to speak on this question has already started the battle, the Chinese side if the deal properly, is likely to fall into passivity in the international community.
The United States and other Western countries had been grabbed in the Chinese yuan exchange rate issue and hold a number of manufacturing enterprises in the United States because it can not very well the challenges of economic globalization in favor of the job loss and other problems are reduced to the so-called ” the RMB exchange rate is too low caused by unfair trade competition. ”
At present, according to the U.S. Congress requested the U.S. Treasury Department twice each year to submit the report for the major trading partners in order to determine whether the country through “manipulating exchange rates” to obtain an unfair competitive advantage. Whenever the report was being released, some forces in the United States will be clamoring to revalue its currency.
In the current international financial crisis, the United States and other Western countries in the rescue and a series of pressing issues in need of China’s support, once played down the RMB exchange rate issue. But now the latest situation, the United States are jointly Western countries, again, the RMB exchange rate speculation, and to this question is to seek post-crisis era of rebalancing the global economy linked to exert great pressure on China.
Exchange rate is within the sovereignty of a country matters involving core national economic interests. The RMB exchange rate formation mechanism reform is necessary, but not likely to follow someone else’s tone away, if the formation of a worldwide appreciation of the RMB will widely expected, it will bring about “hot money” speculation and a series of potential problems.
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