Since the financial crisis, the economic performance of various countries has been different. Although there are bright spots in the major economies of the world from time to time, many of them are "short-lived", which is not far from the stable development and gradual upward trend of the American economy. Due to the inconsistent pace of economic recovery in various countries, the global monetary policy has been divided. In the current global economic downturn, all central banks are considering using unconventional measures to get out of the predicament, while the Federal Reserve is considering raising interest rates at the right time. Coupled with geopolitical and other factors, the market risk aversion has warmed up, and a large amount of capital has poured into the United States to seek preservation and appreciation, which has led to the continued strength of the US dollar, while non-US dollar currencies are generally facing depreciation pressure.

first of all, the global economic recovery is divided, which strongly supports the strengthening of the US dollar. The U.S. economy has rebounded strongly since the second quarter of 214, and the GDP growth rate in the third quarter was further revised up to 5%, the highest in the past 11 years. In addition, through "re-industrialization" and "shale gas revolution", the United States has significantly enhanced the endogenous growth momentum, got rid of the constraints of energy conditions, and the pace of recovery will be steadily accelerated. However, the European economic recovery is still weak, the Japanese economy will remain at a low level, and the risks of emerging economies will increase, which can be described as "sunrise in the east and rain in the west". The pattern of major developed economies and the US economy strongly supports the strengthening of the US dollar.

Secondly, the differentiation of global monetary policy has further pushed the US dollar into an appreciation cycle, and the pressure of depreciation of non-US dollar currencies has increased. With the strong recovery of the American economy, the loose monetary policy of the Federal Reserve gradually withdrew, and interest rate hikes gradually surfaced. The Federal Reserve has just released the minutes of the FOMC meeting in January, which is more confident about the improvement of the labor market. At the same time, it believes that inflation will decline again in the short term, but it is an obvious trend to rise in the medium term and remain stable for a long time, and it has cancelled the wording of keeping the current low interest rate "for a long time". It can be seen that the Federal Reserve is steadily and cautiously changing the forward-looking guidance of raising interest rates step by step. The FOMC meeting statement shows that the Federal Reserve has taken another step towards raising interest rates. Therefore, not surprisingly, it is more likely that the Fed will raise interest rates in the third quarter of this year.

at the same time, the central banks of Europe and Japan have been releasing water on a large scale. The euro zone is once again close to the brink of recession and faces a greater risk of deflation. The European Central Bank's monetary policy has made another heavy attack, and on January 22nd, it announced the expansion of asset purchase projects, the scale of which even exceeded the mainstream market expectations. The Bank of Japan also announced the expansion of asset purchases, and the annual growth target of the monetary base was expanded to 8 trillion yen. Driven by the implementation of quantitative easing policy in Europe and the expected increase in the depreciation of the euro, major currencies are competing to depreciate.

Thirdly, geopolitical factors lead to rising risk aversion, which further pushes up the exchange rate of the US dollar. Since 214, the international geopolitical situation has continued to be tense. The situation in Syria, Gaza and Iraq has escalated, and the dispute between Russia and Ukraine is endless. Recently, the sanctions between Europe, the United States and Japan and Russia have escalated, and the risk of Greece's withdrawal from Europe has increased. A series of factors have further enhanced the attractiveness of the US dollar as a safe-haven asset. In the future, the international geopolitical situation still faces great uncertainty, and the possibility of local disputes still exists. Under the rising risk aversion, funds will once again flow back to the United States, thus supporting the strength of the US dollar and increasing the depreciation pressure of non-US dollar currencies.

It should be pointed out that although the strong recovery trend of the US economy will not change, there are still many deep-seated problems in the US economy, including the low labor participation rate and the persistently low inflation rate. The peripheral economies such as Europe and Japan are still weak, and the process of world economic recovery is still tortuous, which may drag down the US economy. Therefore, the strengthening of the US dollar may not be smooth sailing. At the same time, we should also dialectically understand the impact of the tightening of US monetary policy. In the early days when the United States accelerates its exit from QE, global capital will return to the United States on a large scale, which will lead to capital outflow and the strengthening of the US dollar. However, the accelerated economic recovery in the United States will not only drive the export growth of emerging market countries including China, but also lead to a rebound in the risk appetite of global capital. Therefore, with the increasing confidence in the economic growth prospects of the United States and the improvement of the world economy, the increase in US imports, the increase in the trade deficit, and the rebound in risk appetite, the US dollar is likely to face depreciation pressure again, with shocks and repetitions.

RMB is under great pressure to depreciate in stages

The difference of global recovery and the differentiation of monetary policy have pushed the US dollar to strengthen, which in turn has brought the pressure of RMB depreciation against the US dollar. Since mid-February, 214, RMB has depreciated against the US dollar. In 214, the central parity rate of RMB against the US dollar depreciated slightly by .36%, and the spot exchange rate of RMB against the US dollar depreciated by 2.7%. This is the first real annual depreciation of RMB exchange rate since the exchange rate reform in 25. In 215, the exchange rate of RMB against the US dollar once again showed rare depreciation pressure, and recently it almost approached the down limit line for several consecutive days.

Internationally, the divergence of global monetary policy and the strengthening of the US dollar may lead to capital outflow, which will bring the pressure of domestic liquidity tightening and RMB depreciation. At present and in the future, it is unlikely that the European and Japanese economies will improve rapidly, and the international financial market will remain in turmoil. The appreciation of the US dollar will cause some funds to continuously leave China to buy US dollars and US dollar assets, and China will face the pressure of capital outflow and RMB depreciation. In fact, the changes in the operation of foreign exchange holdings since 214 have reflected this. The new foreign exchange holdings began to drop sharply in May, and then they have been hovering at a low level, and even experienced negative growth in some months. For the whole year, the foreign exchange holdings of financial institutions increased by 778.66 billion yuan in 214, a sharp drop of 72% year-on-year. It is expected that China will once again face the pressure of capital outflow and RMB depreciation at the beginning of the Fed's interest rate hike.

from the domestic perspective, China's economy has entered a complex period of "three-phase superposition", and the economic growth rate has slowed down and the downward pressure on the economy is greater. In January 215, the manufacturing PMI was 49.8%, which fell for five consecutive months and fell into the contraction range for the first time in nearly 28 months. Under the co-action of the macro-economic growth shift and the profound changes in the industry, the risks and problems of local industry agglomeration are in danger of being exposed, which leads to the market sentiment in a period of great fluctuation. In the face of increasing downward pressure on the economy, the expectation of neutral easing of monetary policy is strengthened, and the market expectation of further interest rate cuts and RRR cuts in the near future is increased, which further leads to increased pressure on capital outflow and downward pressure on the RMB exchange rate. At the same time, China has become a big capital exporter. In 214, foreign direct investment exceeded the absorbed foreign direct investment, and the pace of enterprises going abroad accelerated, which promoted capital outflow and increased market foreign exchange demand.

under the influence of factors such as the strengthening of the US dollar and the expected strengthening of RMB depreciation, the willingness of market participants to settle foreign exchange decreased, and the motivation to purchase foreign exchange increased, further increasing the demand for foreign exchange in the market. According to the data of the State Administration of Foreign Exchange, the proportion of bank settlement on behalf of customers, which measures the willingness of enterprises and individuals to settle foreign exchange, has generally declined, from 77% in the first quarter to 68% in the second and third quarters, and rebounded slightly to 71% in the fourth quarter, with an average of 71% for the whole year. The settlement rate has dropped by 1 percentage point over the previous year. On the other hand, the proportion of bank's foreign exchange sales on behalf of customers in foreign exchange payment (that is, the selling exchange rate) increased from 61% in the first quarter to 73% in the fourth quarter and 69% in the whole year, and the selling exchange rate increased by 6 percentage points over the previous year.

The fundamentals of China's economy support the RMB exchange rate to remain stable

First of all, China's economy is expected to continue to maintain medium and high-speed growth. Although there are still many uncertain factors inside and outside China's economy in the short term, and the downward pressure on the economy is great, we should also see that a series of positive factors are accumulating, and there is still much room for macro-control policies. The steady advancement of infrastructure interconnection, "Belt and Road" and coordinated development of regional economy will revitalize the stock of some excess capacity in China and solve the problem of excess capacity while expanding the new external space. More importantly, with the steady progress of reform, the economic structure will be continuously optimized, the quality and efficiency of development will be continuously improved, and new growth points are expected to be cultivated. Therefore, China's economy is expected to continue to maintain a medium-to-high-speed growth of around 7-7.5% in the next 3-5 years, and stable economic growth is the basis for supporting the stability of the RMB exchange rate. It is hard to imagine that the currency of a country that maintains a medium-to-high-speed growth will depreciate significantly.

Secondly, China is still expected to maintain a certain balance of payments surplus. In recent years, driven by the policy of promoting the balance of international payments, China's balance of payments surplus has narrowed, but it will still maintain a certain scale, and the pattern of surplus will not change in the short term. Although the demographic dividend is fading, compared with the international market, the comparative advantage of China's labor price is likely to remain for some time. According to statistics, in 214, China's balance of payments surplus still reached more than $1 billion. However, with the strong recovery of the US economy and the recovery of the world economy, China's exports are expected to improve, and the import demand is accelerating. In the future, China's current account surplus will maintain a steady growth, and the balance of payments will still maintain a certain surplus. The stability of the balance of payments will basically keep the scale of foreign exchange reserves stable, which will make the RMB lack the basis for trend depreciation.

We must be realistic to see that there is a big structural problem in China's trade balance, that is, on the one hand, it is basically a deficit with major economies such as the European Union and ASEAN, and only has a huge surplus with the United States, which may restrict the free fluctuation of the RMB exchange rate to a certain extent, but at the same time it also restricts the possibility of a large trend depreciation of the RMB. According to statistics, the surplus with the United States accounted for more than 1% of the total surplus in previous years. Although it improved in 213, it also reached 83%, and it is expected to remain above 65% in 214. In view of the problems in the trade structure, the huge trade imbalance between China and the United States is difficult to change quickly in the short term. The international economic principle of currency appreciation in surplus countries and currency depreciation in deficit countries means that there is still appreciation pressure of RMB against the US dollar in the future. Therefore, it can be said that the large imbalance in trade between China and the United States has basically blocked the possibility of a significant trend depreciation of the RMB.

Thirdly, adequate foreign exchange reserves are an important basis for ensuring the basic stability of RMB exchange rate and guiding market expectations. China has nearly US$ 4 trillion in foreign exchange reserves, ranking first in the world, which is an important guarantee to prevent the RMB from being expected to depreciate significantly and falling into a vicious circle of "expected currency depreciation → capital outflow → expected depreciation enhancement ……". With sufficient foreign exchange reserves, the central parity of the exchange rate can give full play to the effective guiding role of market expectations, and the market will not be "indifferent" to the central parity, thus ensuring that the exchange rate remains basically stable.

the sharp trend depreciation of RMB is totally different from the

inherent requirements of the "new normal"

Under the "new normal", investment will continue to play a key role, consumption will continue to play a basic role, and exports will continue to play a supporting role, but the economy will shift from the traditional growth point to a new growth point, and domestic demand will become the main driving force for economic growth. Under the "new normal", the strategies of deepening economic restructuring, industrial restructuring and upgrading, and improving economic quality and efficiency all require that we can no longer rely on low currency value to enhance export competitiveness, but rely on depreciation to promote exports.

At present, China's economy is evolving to a stage with more advanced form, more complicated division of labor and more reasonable structure. The economic development has entered a new normal, and it is shifting from high-speed growth to medium-high-speed growth. The mode of economic development is shifting from extensive growth of scale and speed to intensive growth of quality and efficiency. The economic structure is shifting from incremental capacity expansion to deep adjustment with both optimal and incremental adjustment, and the driving force of economic development is shifting from traditional growth point to new growth point.

exchange rate is an important variable in structural adjustment and industrial restructuring and upgrading. As an important relative price level variable, exchange rate affects the cost of international division of labor and plays an important role in economic restructuring and industrial restructuring and upgrading. The depreciation of RMB has obvious promotion effect on the export of low-end manufacturing and labor-intensive products, but it has certain inhibition effect on the export of technology-intensive products. The devaluation of RMB may weaken the motivation of low-end manufacturing and labor-intensive industries to transfer to the central and western regions, and at the same time, it may also weaken their motivation to realize their own industrial upgrading through their own innovation and change.

in addition, the continuous and substantial depreciation of RMB will also lead to the increase of the cost for domestic enterprises to introduce foreign advanced technology, which is not conducive to the upgrading of industrial technology and the increase of added value of export products, to the adjustment of economic structure and the transformation and upgrading of industrial structure, and then to the improvement of economic quality and efficiency. Therefore, the inherent requirements of the new economic normal do not support the policy orientation of RMB's sharp trend depreciation.

Enterprises' "going global" and RMB internationalization require a firm currency

China has become a big capital exporter, and RMB internationalization is progressing steadily. From the perspective of internationalization strategy, it is not appropriate for RMB to continue to depreciate sharply.

At present, the continuous sharp depreciation of RMB is not conducive to enterprises to "go global". The "going out" of China enterprises has become a new bright spot in China's foreign economy in recent years, and China has gradually become a capital exporting country, and is continuously expanding the scale of foreign investment. In 214, the scale of China's foreign investment reached US$ 14 billion, and the actual foreign investment exceeded the amount of foreign investment by about US$ 2 billion for the first time, making it a net exporter, and the development potential of enterprises' foreign investment is still great. International experience shows that the process of expanding capital export is often accompanied by the appreciation of the local currency, and the paths taken by the pound, the dollar, the mark and the yen are all the same. Devaluation runs counter to expanding capital output. If the RMB continues to depreciate sharply, enterprises may suffer exchange losses, and the cost of foreign debt will increase, which will aggravate the financial risks of enterprises and is not conducive to enterprises' "going out".

steadily promoting the internationalization of RMB requires that the value of RMB be stable and relatively firm. For international currency, the stability of value is the basis of its trading medium, pricing scale and storage function. Both the RMB settlement in the trade field and the issuance of financial assets denominated in RMB need to be based on exchange rate stability. It is hard to imagine that a persistently weak currency will be universally held by global investors. The continued sharp depreciation of the RMB is not only not conducive to promoting the internationalization of the RMB, but may even make the internationalization of the RMB retrogress. Therefore, the RMB exchange rate, which continues to depreciate substantially, obviously runs counter to RMB internationalization.

the continued large-scale depreciation of RMB may give birth to open systemic financial risks

the continued large-scale depreciation of RMB may aggravate the risk of capital flight and expose the economy to open systemic financial risks. At present, the scale of China's capital projects is not small, and the continuous sharp depreciation may trigger a large-scale flight of short-term capital. Both theory and practice show that capital control is not only expensive, but also the effectiveness of control is getting worse and worse. Once the capital outflow becomes a trend, it will be difficult to be effectively stopped. Moreover, the pace of capital and financial account opening in China is accelerating. Moreover, the large-scale capital flight and the rapid depreciation of the local currency may interact and circulate, and impact the RMB asset price and the domestic financial market through liquidity effect, anti-wealth effect and substitution effect.

from the perspective of liquidity effect, RMB depreciation will reduce the profit space of speculative capital, promote capital outflow, and lead to domestic capital flowing to real estate, stock and other markets.