CEEM 财经评论13013： 2013年4月17日
A Larger Room for RMB Reform
HE Fan
China has always been named and shamed as “currency manipulation.” Its critics claim that China intentionally suppresses the RMB value below a fair level through massive market intervention, to raise the competitiveness of its exports. The market, however, has a quite different perception. RMB has appreciated by 30% since the 2005 exchange rate reform, and the market for non-deliverable forwards (NDFs) starts to move in both directions, which indicates that the value of the currency has started to level off. At the same time, China’s surplus has come way down. China’s current account surplus, after reaching record levels of around 10 per cent of GDP in 2007, has dropped to 2.6 percent of GDP in 2012.
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It’s good news. It helps to free the hands of the PBOC and increase the autonomy of China’s monetary policy. The PBOC does not need to have the worry as before: when it bought more USD from the market, there would be more pressure on domestic money supply. But, is the current policy sustainable?
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But why do we choose the mysterious number 7.5? It’s just a happy coincidence with this year’s growth target, which is also 7.5 percent, and a back-on-the-envelope calculation. You may want to pick up another number if you like. How about 8, which is the lucky number in China? The point is, whatever number you choose, it should be large enough to convince the investors, but not too large to scare the market.
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We are living in an age of uncertainty. International financial markets are in turmoil, and domestic financial sector is fragile. Advanced countries pumped money to their economies through quantitative easing policy, and released a huge flood of liquidity to the international financial market. One day they decide to exit and increase the interest rate, a sudden stop of capital inflow, or even a panic of capital flight will trail, and cause serious risks for emerging markets. So, why make a frantic dash now?