Let's first look at two facts related to the RMB.

1. Since July 2, 20051,China began to implement a managed floating exchange rate system based on market supply and demand, with reference to a basket of currencies, the central parity of RMB against the US dollar has hit record highs, and the rate of appreciation has gradually accelerated. In 2005, RMB appreciated by 2.56% against the US dollar, by 3.35% in 2006 and by 6.9% in 2007. By March this year 13, the exchange rate of RMB against the US dollar was at the middle price.

The price broke through the 7. 1 mark, setting a new high since the "exchange rate reform".

Second, at the same time, the domestic price level and asset prices also showed a rapid upward trend. In 2007, the consumer price (CPI) in China rose by 4.8%, 3.3 percentage points higher than that in 2006, far exceeding the annual increase of 3% set by the government. Since the beginning of 2008, affected by the Spring Festival and snowstorm, the upward trend of price level has been further strengthened. 5438+ 10 CPI rose by 7. 1% in June and 8.7% in February, hitting a monthly high of 1 1 year. In June and February this year, the overall consumer price level rose by 7.9% year-on-year, and the upward trend is worrying.

Judging from these two facts, it is obvious that while the RMB appreciates externally, there has also been a depreciation (price increase) of the RMB internally. So, what causes the appreciation of RMB on the one hand and the increasing purchasing power of the international market on the other? On the other hand, the purchasing power of the domestic market is declining day by day, and the so-called internal depreciation has appeared.

As we all know, the exchange rate of RMB reflects the foreign exchange rate relationship of RMB, while the rise of domestic price level and asset price reflects the exchange rate relationship of RMB to domestic goods and services and financial assets.

Generally speaking, there are many factors that lead to exchange rate changes, including economic growth rate, inflation rate, relative interest rate, total supply demand, balance of payments, foreign exchange reserves, fiscal deficit, speculation and market expectations. However, as far as the recent accelerated appreciation of the RMB against the US dollar is concerned, the main reasons include three aspects:

First, the gap between the rapid growth of domestic economy and the trend of economic recession in the United States may be the fundamental factor affecting exchange rate changes. Since 2003, China's economic growth rate has remained above 10% for many years, especially in 2007, China's GDP reached 24.66 trillion yuan, a year-on-year increase of 1 1.4%, higher than that of 10.6% from 2003 to 2007. In contrast to other countries, the American economy has experienced a sharp decline since the second half of 2007. In the fourth quarter of 2007, the annual growth rate of American economy was only 0.6%, which was much lower than the 4.9% in the third quarter. A series of other economic data, including employment, factory orders, manufacturing and service industry activity indexes, also show that the US economy has further declined. In this context, the acceleration of RMB appreciation is undoubtedly obvious.

Second, the long-term imbalance in China's international payments and the impact of huge foreign exchange reserves. The balance of payments is the dominant factor that determines the exchange rate trend. Under normal circumstances, the balance of payments deficit indicates that the shortage of foreign exchange will lead to the depreciation of local currency and the appreciation of foreign currency; On the contrary, the balance of payments surplus causes the local currency to appreciate and the foreign currency to depreciate. Since 1994, China's balance of payments has maintained a double surplus in current account and capital account, and the long-term accumulated appreciation pressure of RMB should not be underestimated. Although the growth rate of the surplus gradually declined from the first quarter of 2007, the scale of China's foreign trade surplus still reached $262.2 billion in 2007, an increase of $84.7 billion over 2006. While the trade surplus is expanding, China's foreign exchange reserves are also increasing. By the end of 2007, the balance of China's foreign exchange reserves had reached 1.53 trillion US dollars, up 43.32% year-on-year, making it the largest foreign exchange reserve country in the world. On the one hand, the expansion of foreign exchange reserves has increased the pressure of RMB appreciation, on the other hand, the increase of money supply caused by foreign exchange holdings has intensified the pressure of domestic inflation.

Third, the continuous improvement of domestic interest rates and the strengthening of interest rate expectations have an impact on the exchange rate. According to general logic, interest rates fall and domestic capital flows out; Interest rates rise and foreign capital flows in. This arbitrage activity caused by interest spread is the main way of international capital flow, and capital flow will cause changes in supply and demand in the foreign exchange market, thus affecting the exchange rate. Since 2007, China has raised the benchmark interest rate for deposits and loans for six times in a row, while some countries in the United States and Europe have continuously lowered the benchmark interest rate, further widening the domestic and foreign spreads and further strengthening the pressure and trend of RMB appreciation. In addition, participants' judgments on the foreign exchange market, market traders' psychological expectations and traders' own predictions on the market trend are all important factors that affect the short-term fluctuation of the exchange rate. Affected by the rising domestic price level, the market generally expects the central bank to raise interest rates further. Under the condition that this expectation is constantly confirmed, attracted by rising asset prices, the speed and scale of international hot money flowing into China through various channels have been further improved, which has accelerated the appreciation of RMB.

As far as the internal depreciation of RMB is concerned, the current increase in domestic price level is mainly aimed at food, which has a structural problem. For example, among the 4.8 percentage points of consumer price increase in 2007, the impact of food price increase was 4.0 percentage points, the impact of housing price increase was 0.6 percentage points, and the impact of other goods and services was 0.2 percentage points. In the CPI growth of 8.7% in February this year, the main driving force is still food price, and the contribution of food price increase to CPI growth has reached more than 80%. Of course, in addition to structural problems, the internal depreciation of RMB caused by rising domestic price levels and rising asset prices also has its objective inevitability. Among them, there are both international factors (including the spread and transmission of inflation among countries) and realistic reasons of domestic economic imbalance, such as global excess liquidity, production reduction in some major agricultural products producing countries, high oil prices (according to estimates, oil prices account for about 5% of China's domestic price index, and if the price of refined oil is raised by 10%, it will drive prices up by 0.5 percentage points), RMB appreciation, and domestic money supply increase.

In a word, the coexistence of RMB's external appreciation and internal depreciation is a staged performance caused by internal and external imbalance in the process of China's economic development. They do not exist in isolation, but have a certain interactive relationship. From the perspective of promoting the sustained and healthy development of China's economy, the primary task at present is still to control the rate of price increase, avoid serious inflation and prevent the accelerated depreciation of RMB at home, which will also help to curb the accelerated appreciation of RMB abroad. In view of the characteristics of the current price increase, the government and relevant departments have taken a series of "prevention" and "control" measures. We believe that through these measures, the price level can be effectively controlled step by step, and the domestic depreciation of the RMB can be gradually eased. (He Dexu, Deputy Director of Institute of Finance and Trade, China Academy of Social Sciences)