Conquering the Summit With Firm Strides —— Review on the restarted RMB exchange rate reform

On the evening of June 19th 2010, the central bank Of China released that on further advancing the reform in RMB exchange rate formation mechanism and strengthening the flexibility of RMB rate＂. There were three key points. First, ＂now that global economy is steadily recovering, and the recovering trend in China is strengthened, it is necessary to further advance reform in RMB exchange rate formation mechanism,     

Sino-US Trade Develops in Interdependency

China and the USA have decided to start up the third round of negotiation on the textile issue in the recent future. Maybe there is some active significance to start up this round of negotiation in such an occasion, for China‘s central bank has launched a reform on the RMB exchange rate in July and appreciated RMB for 2%. In the meantime, Huo Jianguo, head of the Department of Foreign Trade, Ministry of Commerce, revealed that the trade surplus with the USA is expected to exceed US$90 billion this year.……     

Sino-US Trade Develops in Interdependency

China and the USA have decided to start up the third round of negotiation on the textile issue in the recent future. Maybe there is some activesignificance to start up this round of negotiation in such an occasion, for China＇s central bank has launched a reform on the RMB exchange rate in July and appreciated RMB for 2%. In the meantime, Huo Jianguo, head of the Department of Foreign Trade, Ministry of Commerce, revealed that the trade surplus with the USA is expected to exceed US$90 billion this year. Wang Zihong, Head of Division of Economic Research, Institute of American Studies, Chinese Academy of Social Science, gave his answers on the question when interviewed by China＇s Foreign Trade.     

Differences Between Two Foreign Exchange Reforms

Different from that in July 12005, this reform in foreign exchange system happens with different economic environment, historical background and expected appreciation. Participants in the industry said frankly that China central bank started the reform again due to pressure from international markets, but it is not possible for RMB to appreciate greatly in a short term.     

RMB Exchange Rate Reform：Past and future

With the deepening of China＇s financial reform, economic development and the enforcement of market roles, the RMB exchange rate needs to become more flexible and become a more sensitive reflection of the changes in market supply and demand. Under such circumstances, on July 21, the People＇s Bank of China announced that the previous system where China＇s RMB was pegged to the U.S. Dollar would be changed to include a basket of foreign currencies, shifting China＇s exchange rate system into a managed floating exchange rate regime based on market supply and demand.     

Market-determined Interest Rate Mechanism to Start Operation

Anew interest rate indicator,called the Shanghai inter- bank offered rate (SHIBOR),goes into operation on Jan.4,announced the central bank. The mechanism,which will give the central bank real-time market information on interbank interest rates,may become a new benchmark for the money market,said the People's Bank of China (PBoC).     

The RMB Appreciation in Predicament

After showing a moderate two-way fluctuation for nearly three months, the RMB exchange rate quickly surged in the middle of September, but the increasing rate of the exchange rate of RMB against the dollar remained slow. Will the RMB appreciation be rapid enough to meet the demand from the United States？ And if so, would the global trade balance be restored within a short period of time？     

RMB's Exchange Rate Policy Shift Creates Opportunity for Neighboring Countries

The Chinese Yuan showed a trend to rise against the U.S. Dollar after the announcement of the People's Bank of China, Chinas central bank, to proceed further with the reform of the Yuan's exchange rate regime. Other Asian currencies followed the upward move.     

RMB＇s Exchange Rate Policy Shift Creates Opportunity for Neighboring Countries

The Chinese Yuan showed a trend to rise against the U.S. dollar after the announcement of the Peoples Bank of China, Chinas central bank,to proceed further with the reform of the Yuan＇s exchange rate regime. Other Asian currencies followed the upward move.     

China＇s credit card debt continues to expand

Credit card debt at least six months overdue in China rose 126.5 percent year on year in the first three quarters of 2009 to RMB 7.43 billion （US$1.09 billion）, the People＇s Bank of China, the central bank, said on November 30.     

Exports： 45.7% ↑ in Feb.

China＇s new yuan-denominated lending in February stood at RMB 700.1 billion （US$102.65 billion）, half that ofJanuary＇s RMB 1.39 trillion, the People＇s Bank of China （PBOC, the central bank） said on March 11.     

Rising Interest of AFRB Could Relieve Pressure of Renminbi Appreciation

Analysts think AFRB's increase of interest has a great positive influence on China, because the main impact on the stability of RMB's exchange rate comes from the idle fund that is betting on the appreciation of RMB.The Open Market Committee of American Federal Reserve Board (AFRB) held two day's formal meeting for the first time in 2005, they unanimously agreed to increase the interest rate again, the interest rate of federal fund is increased from 2.25% to 2.5%; the discount rate is raised to 3.5%, which accords with the market expectancy. At present, China's one-year deposit rate is 2.25%, which is 0.25% lower than US's interest rate.     

HSBC Suggests Renminbi Should Be Stable

Hong Kong and Shanghai Banking Corporation (HSBC) just released a 48-pages report to suggest Renminbi should be stable. Someone said that if RMB is not going to appreciate to a large scale, Chinese economy will be overheated continuously. Under the system of current rate, in order to keep the exchange rate at the existing level, Chinese central bank must intervene the foreign exchange market, put in a large amount of Renminbi, thus bring pressure of inflation and overheating of economy.     

The RMB Exchange Rate Keeps Increasing

In July 2005, the People's Bank of China officially announced that it would adopt a manageable floating exchange rate, adjusted according to a basket of currencies based on market supply and demand. On that day, the exchange rate of the RMB to the U.S. Dollar increased by 21 percent, and since then the RMB exchange rate has gradually turned to a more flexible exchange rate convention, rather than focusing on the Dollar only.     

Loan Growth Slowing down in 1st 7 Months

The growth of loans significantly slowed during the first seven months of this year, which indicates the government's economic macro control measures are taking effect, the People's Bank of China (PBOC) said. By the end of July, outstanding loans of all financial institutions stood at RMB18.1 trillion (US$2.18 trillion),up 15.9% on a year-on-year basis. The growth rate compared to 23.2% registered during the same period in 2003,the central bank said.     

A New Interest Rise Directed at Inflation

Greater inflation pressure and worsening negative interest rate are the direct causes for the interest rate rise,which also conforms to the changes of the market interest rate. Right when the Qingming Festival is coming to an end,the central bank exercises its muscles again to increase the interest rate,raising the base interest rate for deposit and loan in RMB by 0.25 percentage points.Growing pressure of inflation and worsening negative interest rate are the direct causes for the interest rate rise,sai...     

Financial institutions requested to back industrial rebalance

Monetary policy should be made to meet multiple objectives rather than focus only on fighting inflation, Zhou Xiaochuan. governor of the People＇s Bank of China, the central bank, said on December 22. China＇s monetary policy covered four considerations, Zhou said at a forum on development and reform in China＇s financial sector in Beijing. referring to low inflation, economic growth, employment and balance of international payments.     

The RMB Exchange Rate Keeps increasing

In July 2005,the People's Bank of China of- ficially announced that it would adopt a man- ageable floating exchange rate,adjusted ac- cording to a basket of currencies based on market supply and demand.On that day,the exchange rate of the RMB to the U.S.Dollar increased by 21 percent,and since then the RMB exchange rate has gradually turned to a more flexible ex- change rate convention,rather than focusing on     

Loan Growth Slowing down in 1st 7 Months

The growth of loans significantly slowed during the first seven months of this year, which indicates the government‘s economic macro control measures are taking effect, the People‘s Bank of China (PBOC) said. 　　By the end of July, outstanding loans of all financial institutions stood at RMB18.1 trillion (US$2.18 trillion),up 15.9% on a year-on-year basis. The growth rate compared to 23.2% registered during the same period in 2003,the central bank said.……     

Wu Jinglian:No Timetable for RMB Appreciation

Professor Wu Jinglian recalled the changes of Renminbi exchange rate mechanism and analyzed that before 1994, China had a multi-exchange rate, such as official price and adjustable price, sometimes leading a higher evaluation of Renminbi. Since 1994, China has had a strict control floating exchange rate. After the financial crisis in Southeast Asia, China‘s neighboring countries as well as the US appealed for non-depreciation of Renminbi.China accepted the appeal and kept a steady exchange rate of Renminbi,which contributed to the economic resurgence of Asia and world.……