The Reason Behind The Depreciation Of RMB Is Unknown.

The trend of RMB devaluation started from mid February this year is one of the most important events in this year's financial market. This phenomenon even made some officials in the United States believe that the Central Bank of China has helped a href= "//www.sjfzxm.com" and export /a business recklessly.

However, the BACKTHROW of the devaluation is still a mystery.

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< p > in fact, there are many indications that the Central Bank of China has been intervening in the RMB exchange rate.

The biggest news is not that the central bank has deliberately designed to devalue the renminbi, but a hidden fact behind it. A deflation is lurking on the track of China's economic development.

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< p > first, let's look at the normal intervention of the Central Bank of China on < a href= "//www.sjfzxm.com/news/index_s.asp" > foreign exchange market < /a >.

To maintain an expected Renminbi exchange rate, the Central Bank of China may have to buy US dollars at higher prices from Chinese exporters and foreign investors from time to time.

Since 2005, the renminbi has appreciated by about 30%.

But since February 17th this year, there has been a "great reversal" in this trend. By March, this reversal is even more obvious.

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< p > (image source: QZ.com) < /p >

< p > some investors attribute the RMB dive to the speculators in the foreign exchange market.

But the latest data show that in March, the Central Bank of China bought a value of 28 billion dollars, equivalent to 174 billion yuan.

This figure is equivalent to more than 90% of China's total purchases of dollars in that month.

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< p > this is the strange thing.

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< p > when the Central Bank of China bought high priced dollars from exporters, it actually injected extra RMB into the Chinese economy.

As a result, the increase in cash flow will lead to a rapid increase in prices, so the Central Bank of China will try to offset the effect of foreign exchange purchases and issue Renminbi bonds to absorb additional liquidity in the system.

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< p > but in March, things didn't work like this.

Economists believe that the central bank's failure to do so may be because the extra liquidity in the system has depressed interest rates (interest rate is the policy adjustment tool currently expected by the Central Bank of China).

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Yao Wei, China's chief economist at P, said that falling prices usually imply that companies and families are paying their debts, but this has not happened in China.

At the same time, the scale of credit growth is still two times the GDP growth rate, which means that large-scale credit behavior is continuing.

As a matter of fact, large scale investment caused by credit growth should flow into the economy, which will lead to higher prices. But why not? /p

Yao Wei P said that this may be because the state sector is still in the mad lending, but the money is invested in projects that can not be profitable.

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< p > then what will the Central Bank of China do? Some economists suggest the most conventional way to lower interest rates and encourage loans.

But Yao Wei is skeptical.

She believes that the opening of the credit gate will also inflow funds to inefficient state sector, and if China implements financial reform as planned, high interest rates will be needed to prevent the emergence of credit frenzy, because in such a frenzy, state-owned banks will face fierce competition.

This situation has occurred in Japan and has had disastrous consequences.

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< p > Yao Wei said that it is also a good thing that the Central Bank of China does not directly relax monetary policy.

However, it is a great risk to let the a href= "//www.sjfzxm.com" RMB /a /a continue to depreciate. This may lead to massive capital outflow and will undoubtedly be a disaster for an economy that relies on liquidity to survive.

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