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- Dianne Hai Ha
Submitted by: Jerri Lily
Only three months, the dollar index fell from 88 to 77, the depreciation rate of 12.5%. The second round of the Fed’s policy of quantitative easing, in contrast, the Fed will again the way through the purchase of long-term bonds, issuing hundreds of billions of dollars in bills. This means that the dollar continues to weaken a high probability event, and even below March 2008’s lowest point, the current dollar global hedge fund short positions correspondingly rapid expansion.
Depreciation of the dollar as the U.S. economy, more and more “last straw”, the U.S. dollar trying to achieve three objectives: first, to promote U.S. exports and employment. The second is to promote the United States cut the huge debt burden, for example, the United States in the renminbi against the dollar in 8:1 debt 10 billion U.S. dollars from China, RMB appreciation to 6:1 in the return of 10 billion U.S. dollars of debt, the creditors of China , the equivalent of 80 billion yuan lent only to recover 60 billion yuan, wealth corresponding decrease in the dollar of wealth from creditor to debtor’s big transfer. Third, the United States has been the appreciation of the hard asset wealth, the United States in energy resources, agriculture and other fields have a lot of hard assets.
China, as the rise of the global economy is one of the countries heavily dependent on exports and economic growth mode of foreign exchange reserves held by the reality of a large number of demanding that China must take precautions against the impact of depreciation of the dollar.
This requires China to accelerate foreign exchange reserve diversification. In addition to diversification of currency allocation, the investment direction should not be limited to financial assets through purchase of overseas resources, continue to accumulate gold reserves of oil and other strategic resources to the effective devaluation of the dollar hedge.
Second, ask the Chinese to strengthen the control of hot money inflows and outflows. The United States since the last round began in March 2009 quantitative easing policy has generated a lot of liquidity, and caused the world, including the sharp rise in Chinese real estate market. Expected in the current round under the quantitative easing policy, overseas funds are turning to China and other emerging market countries. SAFE latest data show that in September surplus of foreign exchange settlement bank Valet 284 billion, this figure means that a large number of cross-border capital flows to the national situation continues. Conservative estimates, China in September to 530 billion U.S. dollars of hot money inflows. Hong Kong, “Wen Wei Po”, said some 6,500 billion of “hot money” flowing into the Hong Kong market, at the same time, Soros carrying 10 billion U.S. dollars in cash to enter Hong Kong, the target has been locked in A shares and H shares. Depreciation of the dollar has made substantial capital inflow into China and other emerging market countries, which often breed asset bubbles, and finally to the land of hot money flows through the economy devastated. Therefore, China’s hot money to implement more stringent controls, hot money inflows and outflows from the two crossing control.
Recently, a number of emerging markets to strengthen capital controls introduced the action. For example: Thai Ministry of Finance announced plans to levy bonds to overseas investors, interest income withholding tax of 15%, hoping to block the inflow of hot money, then stop the baht appreciation; the Brazilian government is blocking the hot money has been raised several times the financial transactions tax; China central bank officials also indicated, in order to prevent foreign exchange outflows, you can consider imposing foreign exchange outflow of tax. China should implement more stringent capital controls, as China’s capital account is not open for settlement through the mixed inventory of trade items, underground banking and other channels to increase the supervision of the investigation and punishment. China can formulate laws against hot money, hot money clearly illegal screening criteria. Can increase the cost of entry and exit of hot money, especially the exit costs.
Diversification and strengthening of reserves outside the control of hot money, China’s other initiatives should be accelerated pace of internationalization of the RMB, the yuan soon become an international currency. As the world’s largest exporter, China with other countries still trade settlement currency, making China the dollar in trade under exchange rate fluctuations. RMB internationalization of China’s future development. It is gratifying that the Chinese government has actively promoted since December 2008, China has with Malaysia, Belarus, Indonesia, Argentina, Singapore, Hong Kong and other countries and regions signed bilateral currency swap agreement, the RMB pilot two-way expansion has also become an important process of the internationalization of RMB.
China should accelerate the advance of internationalization of the RMB, the yuan currency in the world stage as soon as possible to play an important role in reducing China’s foreign economic changes on the impact of exchange rate fluctuations to reduce production and operation, and the impact of the national strategic investment , and gradually master the pricing of goods for China’s economic development and create a stable environment.
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