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The US pressure on the RMB exchange rate in the new stage of Sino-US relations and its response
Author: Li Wenlong Zhang Shiming
[ 在风格迥异的拜登新政府接替特朗普政府之后，应密切跟踪评估新一届美国政府对人民币汇率评判的发展动向，并进行风险预判、风险冲击分析以及开展应对计划。 ]
On January 20, the Biden administration replaced the Trump administration. New changes will occur in Sino-US relations, and hot spots will also be adjusted. However, the RMB exchange rate is always one of the most important bilateral issues.
Looking back at the previous U.S. governments, most of them tried to use the RMB exchange rate issue as a strategy to contain China. In particular, the Trump administration, which declared “America first”, has continuously stepped up anti-globalization measures and repeatedly accused China of manipulating the RMB exchange rate and promoting the devaluation of the RMB to gain competition. Advantage. After the new Biden administration with a different style succeeds the Trump administration, it is necessary to closely follow and evaluate the development trend of the new US government’s assessment of the RMB exchange rate, and conduct risk prediction, risk impact analysis, and develop response plans.
Assess the possible attitude of the U.S. government toward the RMB exchange rate in the future
In its trade strategy with China announced in July 2020, the Biden team accused China of unfair trade practices, including exchange rate manipulation and anti-competitive dumping. In addition, Biden announced an economic plan called “Buy American Products, Made in America”. Its core commitment is to increase government procurement by US$400 billion to purchase products made in the United States. Under the premise that the Biden team clearly opposed the Trump administration’s extensive tariff war, it would be for Biden to use political and economic means to force the appreciation of the renminbi, weaken the competitiveness of Chinese exports, and increase the proportion of American-made products. An important implementation path for economic plans.
Robert Scott, a senior economist at the American Institute of Economic Policy, predicts that the next US government will put “exchange rate adjustment” on a higher priority. Yellen, Minister of Finance of the Biden administration, stated in 2019 that it is “very difficult and dangerous” to determine when a country gains trade advantage by manipulating the exchange rate; “the weakening of the exchange rate may be just a by-product of loose economic policies”.
We expect Biden to implement expansionary fiscal policies with a high probability after he takes office. The de facto “weak dollarization” policy will likely promote the appreciation of the renminbi and enhance the competitiveness of the dollar. Biden nominated Dai Qi (Katherine Tai) to succeed Lighthizer as the next U.S. Trade Representative in December last year. Dai Qi has always emphasized that he is proud to be an “American worker advocate” and will protect the best interests of the United States. It may increase the tougher attitude and strategy towards the RMB exchange rate.
Since 1992, the U.S. Treasury Department has designated China as a currency manipulator 6 times, and it has been included in the monitoring list 5 times. Based on the quantitative analysis of historical data, during the period of RMB appreciation, the probability that the US Treasury Department will regard China as a currency manipulator is relatively small.
The renminbi has experienced a relatively significant appreciation recently, and it may remain stable and slightly appreciated in the future. According to the comprehensive calculation of relevant data released by the International Monetary Fund (IMF) in October 2020, the exchange rate of RMB against the US dollar will appreciate steadily and slightly over the next five years, from 6.844 in 2021 to 6.665 in 2025.
Based on comprehensive judgment, after Biden took office, his core concern in the exchange rate was to make the RMB continue to maintain its current relatively strong momentum. Under this circumstance, the Biden administration is less likely to list China as a currency manipulator, but it may be more likely to promote the appreciation of the renminbi through a series of “weak dollarization” policies in disguise, thereby enhancing the competitiveness of American products.
1. Actively communicate with the Biden administration and resume the Sino-US strategic dialogue and exchange rate dialogue mechanism as soon as possible. As the world’s largest economy, China and the United States will win each other while fighting together. As a typical representative of the establishment of the United States, Biden attaches great importance to traditional international frameworks and rules, supports free trade and multilateralism. He should resume the Sino-US strategic dialogue and exchange rate dialogue mechanism as soon as possible, promote Sino-US bilateral relations from tension to relaxation, and reduce the US’s exposure to the RMB. Misjudgments and excessive actions on exchange rate issues.
2. Further reflect the market supply and demand forces of the RMB exchange rate and enhance the transparency of the exchange rate formation mechanism. Marketization is the core of determining the RMB exchange rate. Despite the increased uncertainty in the external environment, continuing to appropriately increase the degree of marketization of the RMB exchange rate will help strengthen the flexibility of the RMB exchange rate, making the US’s unfounded and unreasonable accusations self-defeating. Of course, the marketization of the renminbi does not mean complete market laissez-faire. Maintaining the upper and lower limits of management and curbing large-scale abnormal capital flows will remain the focus of long-term policy in the future.
3. Reduce unnecessary misunderstandings by the US on the digital renminbi (DC/EP). The first is to “practice your internal strength” and do various tests on the security and reliability of the digital renminbi in the country. The second is to reduce foreign publicity and reports on DC/EP to prevent misunderstandings from the outside world—that is, the central bank’s digital currency will challenge the hegemony of the US dollar and prevent the Biden government from taking precautionary measures against the central bank’s digital currency.
4. Be wary of potential future reversal risks after the current rapid rise in the RMB exchange rate has led to the excessive inflow of international short-term capital. The appreciation of the renminbi in the second half of 2020 and the rapid inflow of international short-term capital are the result of multiple factors. Adequate plans should be made for 2021. First, the current exchange rate will appreciate after the large-scale global release of vaccines to promote the recovery of global production The restraining effect on China’s exports will be prominent; the second is to avoid the outflow of a large amount of hot money after the expected depreciation of the renminbi in the future, thereby endangering China’s financial stability and financial security.
5. Continue to promote the construction of a global RMB payment system in a low-key and fast pace. Without precluding the escalation of the U.S.’s containment of China, especially the adoption of financial containment, relying on the two major platforms of RCEP (Regional Comprehensive Economic Partnership) and the “One Belt One Road”, adhere to the principles of market-driven and independent corporate choice to promote the internationalization of the RMB. Gradually expand the scope and convenience of renminbi payment, promote the construction of a renminbi global payment system, serve China’s foreign trade and investment, and reduce dependence on the US dollar payment system.
(Li Wenlong is the Dean of the Central Asia Digital Economy Research Institute, and Zhang Shiming is a senior researcher at the ASEAN Economic Research Institute)
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