Recently, the topic of pressure from the United States and Japan for RMB appreciation has become a hot topic. The United States and Japan accused the China administration of interfering with foreign exchange freedom, and demanded that China float its exchange rate and liberalize its capital controls. China firmly or tactfully refused. To clarify this issue, we must first talk about gold. As we all know, the earliest currencies of mankind are gold and silver. Gold and silver have become a symbol of wealth accepted by all countries because they are not easy to deteriorate, have little output and are easy to cut. At that time, European colonists were very enthusiastic about gold, and the important purpose of their search for the new continent was to find gold. When talking about this period of history, many later documents mostly accuse capitalism of plundering wealth naked and accumulating the evil nature of capital. In fact, if Europe at that time was regarded as a relatively isolated whole, that is, if the plundered gold was mainly used within Europe, then for Europe, it was not the accumulation of original capital, but just equivalent to monetary expansion. To put it simply, the increase of gold in Europe is just like printing more money today. A little gold expansion can stimulate the economy, while excessive gold expansion will only make the economy crazy.
Of course, if the total amount of gold does not increase, just as the central bank stopped issuing banknotes today, the economy will stagnate because there is not enough money.
In terms of texture, gold is very suitable as a currency. But it doesn't have all the requirements of money. This is reflected in its supply. The supply of gold is naturally certain, sometimes more and sometimes less. National economic development often needs a stable money supply. Especially when the world economy develops to a certain amount, gold has failed to keep up with the economic growth and has become a restrictive factor of the economy.
In the evolution of money, paper money began to appear. The first note is white. Yinzhuang (equivalent to today's private banks) issues paper money, and people who have paper money can change it into silver or gold at various branches of Yinzhuang. Since the issued paper money may turn into gold or silver at any time, every silver village must have the same amount of gold or silver before it dares to issue paper money. This is what we often hear: the issuance of paper money should be based on reserves such as gold and foreign exchange. Of course, this statement reflects the reality at that time. Some economists still use this sentence to explain today's monetary policy, which is simply nonsense.
In the process of issuing bank notes, Yinzhuang found that it can issue more bank notes than gold or silver-because it is impossible to convert bank notes into gold immediately. Especially those big silver houses, because of their good reputation, their banknotes can even be bought directly like gold and silver, and people don't care whether they have to be converted into gold and silver. In this way, the paper money issued by Yinzhuang far exceeds its gold and silver holdings. This is the beginning of the credibility currency. It means that money can be printed out of thin air. But no matter in the past or now, this expansion is done through credit. Therefore, many economists insist that even if money can be created out of thin air, it can only be expanded by credit. This statement has no theoretical basis at all. I can predict that if we want to reform monetary policy and fiscal policy, we will first break through the traditional theory in the way of currency issuance.
Since the bank can issue more money than it actually owns, as long as there is no run, it actually occupies these extra wealth. This is similar to the currency tax of issuing bank notes in modern countries. At the same time, paper money is issued by private individuals, which is not conducive to the state's macro-control of the economy. Therefore, in the process of currency evolution, the state began to concentrate the right to issue banknotes. At first, the paper money issued by the country was based on gold, that is, as many paper money as the country needed was issued, and the paper money could be freely converted into gold. However, with the development of economy, the demand for total money increased, and the demand for gold began to exceed the supply. In addition to gold reserves, the state had to issue excessive paper money. At this point, the gold standard system collapsed. Later, gold became an important means of payment in the world, and the state felt it necessary to master it by itself, so the state began to terminate the free convertibility of paper money and gold and use the limited gold for state control. In this way, the era of complete credit currency has entered, and gold has withdrawn from circulation as a domestic means of payment. The state issues paper money completely according to its own needs, and obtains huge profits from issuing paper money. Because they pay for paper and print money.
Based on the same principle, the international foreign exchange market is also on the same evolution path.
After World War II, countries put gold in the US central bank, and the United States put dollars in proportion to gold. All countries accept the dollar as the common currency. This process is relatively fair, because the United States will issue dollars in strict accordance with its own gold reserves, and countries can freely withdraw American gold with dollars, so there is no problem of exploiting the wealth of other countries. But soon, due to the rapid development of the world economy, not to mention the gold reserves of the United States, the total world gold output could not keep up with the economic development. In order to meet the needs of foreign exchange reserves and world currency, the United States has to start printing dollars other than gold reserves. When talking about this period of history, we should correct a mistake, that is, the United States printed a lot of dollars to solve its foreign exchange deficit, not necessarily because of the recession of the American economy. Even if the American economy does not decline, the development of the world economy will prompt it to issue dollars other than gold reserves. In particular, the faster the American economy develops, the more it needs to print dollars. If the American economy is in a surplus for a long time, the dollar will not be sent to the world and will not become the world currency.
Since the total amount of US dollars issued far exceeds the US gold reserves, the US dollar can no longer maintain its previous ratio with gold, and the US dollar has to depreciate. At this time, the world set off a wave of selling dollars and extracting gold. If left unchecked, the gold of the US central bank may run out, so the US government announced that it would stop the exchange of dollars and gold and decouple the dollars from gold. This is the collapse of the Bretton Woods system.
The collapse of the Bretton Woods system is not caused by the economic recession of any country, but the inevitable historical trend of world economic development.
Despite the collapse of the Bretton Woods system, the US dollar is still an unshakable world currency with its historical practices and strong economic strength. And at this time, the hegemony of the dollar began to appear, and the dollar began to exist as an important means for the United States to seize the wealth of other countries.
Figuratively speaking, the United States at this time is similar to the world central bank. The dollar issued by the United States has become a credit-based currency. It can print dollars out of thin air to buy physical wealth produced in other countries. In other words, the United States can exchange white paper for raw materials and other objects in other countries. Some people will say that if the United States buys products from other countries with dollars, other countries will also get dollars, and other countries can buy American products with dollars in turn, so there is no question of saying that American hegemony is not hegemonic. This problem involves two aspects. One aspect is closely related to the current dollar depreciation problem, which I will elaborate later. Let me talk about its first aspect here, that is, the currency tax of the US dollar.
Although countries with dollars can buy American products, thus making the exchange with the United States an equivalent exchange, on the one hand, it is an important means of foreign exchange reserves of various countries, and with the economic growth, the reserves will gradually increase; On the other hand, the US dollar, as the world currency, is bound to circulate in other countries in the world. The faster the world economy develops, the faster the total circulation of countries increases. Therefore, from a local point of view, dollars continue to flow out or into the United States, but on the whole, the United States still exports dollars to the outside world and imports physical wealth to the inside. That's why you can see that it is often the real cause of the American deficit. This long-term stagnation of dollars outside the United States is the monetary tax charged by the United States to various countries. By virtue of the privilege of currency tax, the United States directly plunders the wealth of other countries without compensation. Therefore, when you see that the United States provides assistance to other countries in the world, you should know that it may only return some of the wealth plundered from these countries. At the same time, when you see the deficit of the United States again and the United States desperately blames other countries for its deficit, don't easily draw the conclusion that the United States really suffers. It's a thief calling for a thief, and you may bleed.
Indeed, if the United States exports too many dollars, if these exported dollars in turn buy American products, it will undoubtedly be a loss of American wealth and its monetary tax will be less. Therefore, the United States has taken another measure: devaluation. Personally, I think it is a long-term established strategy of the United States to maintain the stability of the US dollar for a certain period of time and then depreciate it, rather than a sudden crisis. When other countries accumulated too much US dollar reserves, such as China, which accumulated more than 300 billion US dollars in foreign exchange reserves without eating or drinking, the United States began to consider devaluation. The depreciation of the dollar is mainly accomplished by lowering interest rates, expanding fiscal expenditure and the intervention of the central bank. Through these measures, the dollar supply increased and the dollar depreciated. Lowering interest rates and expanding fiscal expenditure in the United States will also have an impact on the domestic economy, for example, the economy may overheat. However, although I can't tell whether it is intentional or unfamiliar with the economic operation, the United States strictly controls domestic demand when implementing the means of depreciation of the US dollar, that is to say, through the imbalance between supply and demand, the interest rate of the US dollar is lowered, and the US economy is not too hot. I have stated that it is not excluded that the imbalance between supply and demand is caused by the unfamiliarity of the economy in the United States. However, if it were me, if I had a better understanding of the economy, I would not rule out taking some similar measures. In particular, the United States just ended a war, which also created favorable conditions for devaluation.
If the dollar depreciates 10%, China's foreign exchange reserves will suddenly lose $30-35 billion. How much will it lose if it is put into countries all over the world? How much will America plunder?
Of course, although the United States allows a certain deficit, the deficit is too large, which is also unfavorable to its influence. On the one hand, the United States reduced its deficit through devaluation, on the other hand, especially during the Bush administration, welfare was weakened, the economy shrank and the unemployment rate rose, so increasing the demand for export and foreign trade became the focus of stimulating the economy. Most of American exports are high-tech products with high added value, and more exports have little effect on the reduction of American physical wealth. Therefore, it is also the focus of the American economy to increase exports and import physical wealth with low added value with the wealth obtained from exports. The depreciation of the dollar has reduced the export price and increased exports.
As far as the United States and China are concerned, the depreciation of the US dollar and the appreciation of the RMB will have an impact on future imports and exports. Needless to say, the most ruthless move is yet to come.
The United States and Japan accused the China administration of interfering in the foreign exchange market. There are two main requirements, one is the appreciation of RMB, and the other is the liberalization of capital market control, which means that capital can be freely exchanged. These two requirements are fatal to China's economy.
There are many ways to devalue the currency. For example, in the United States, it is achieved by adjusting the US dollar interest rate and other domestic economic policy means. However, if this method is not properly used, it will often hurt the enemy by 1000 and 800, because these domestic economic policies will not only affect the foreign exchange market, but also threaten the domestic economy. Frankly speaking, this is also caused by the defects of western economic theory itself. China takes another approach, that is, directly through the central bank's buying and selling, to ensure the exchange rate of RMB in the foreign exchange market. At the same time, China also adopts capital control, and capital cannot freely enter and leave the China market. Therefore, China can intervene in the foreign exchange market while shielding its own economy. But in any case, whether the currency depreciates or not is largely determined by government policies. Whether in the United States or Japan, their currency depreciation is the result of government intervention, not the market and freedom they keep saying. Some Japanese officials said that although the interest rate is determined by the government, the exchange rate should be determined by the market. This is a typical discourse hegemony. They are all means of intervention, leading to the consequences of currency depreciation. Is it only your intervention that is a market economy and my intervention is government intervention? To tell the truth, the current foreign exchange system in the west has many defects. Is it government intervention to make up for these shortcomings and not make the same mistakes as you?
Their real purpose, besides the above, lies in a more insidious means.
At or before they demanded RMB appreciation, American or Japanese financial speculators began to secretly flow large amounts of money into China. If China's capital market is open, this inflow will be easier. After the capital flows into China, it is converted into RMB, waiting for the RMB to appreciate. After the appreciation of RMB, these financial predators began to sell RMB and buy dollars. It is impossible for the Bank of China to follow suit and throw out RMB to buy dollars. In that case, the RMB exchange rate will fall. In order to maintain the RMB exchange rate, China banks must buy RMB and sell foreign exchange reserves such as US dollars. Originally, China's RMB obviously wanted to appreciate, because of China's unbalanced economy, insufficient demand and low prices, a large number of RMB wandered outside the market. Especially in recent years, a large number of funds have fled. According to statistics, the amount of funds fleeing has reached 3 trillion, which does not mean that the RMB should really appreciate. If the capital market had been opened at that time, capital flight and the RMB that they were hiding in the underground of China, and financial predators used financial leverage to mobilize 10 yuan for 1 yuan to attack the RMB, there might be two results in the end. As an optimistic result, the Bank of China has enough foreign exchange reserves, which finally supports the RMB exchange rate. But at this time, due to a large number of dollars thrown out, foreign exchange reserves have also been lost, and the national economy has regressed for several years or even more than ten years. The second result is even more terrible, that is, the central bank felt untenable and finally changed the RMB exchange rate. At this time, the RMB exchange rate will fall all the way. The more the RMB falls, the more people throw it out, and the more the RMB exchange rate falls until it finally collapses. This is a replica of the Southeast Asian financial crisis. By that time, China was completely depressed.
This is the most serious consequence that RMB appreciation may bring. Even though China still implements capital controls, it is a sign that all kinds of speculative capital still enters China through various channels, exceeding $20 billion.
Then, the RMB can not appreciate, but can the capital be liberalized? As Zhang Wuchang advocated? In contrast, I prefer to float the RMB exchange rate without opening up capital transactions, rather than opening up the capital market at a fixed RMB exchange rate. Because of the floating exchange rate, hot money will attack the RMB. At least I can strengthen control through administrative means. However, if the capital market is opened, and the RMB may depreciate as a whole, if foreign financial predators attack China together with the underground RMB, even if the RMB does not appreciate, it may consume a lot of foreign exchange reserves and the economy will be hit hard.
On the other hand, we can't help asking, even if the United States doesn't try to rob China of foreign exchange, what does foreign exchange mean to China?
For a long time, due to policy mistakes in education, social security and welfare, and the further widening economic gap between the central and western regions and between urban and rural areas, China's domestic demand is seriously insufficient. Insufficient domestic demand leads to further decline in wages, which in turn leads to further decline in domestic demand. Therefore, China pinned its economic development on external demand and hoped to sell its products through foreign trade. China's products are mostly low-grade products, and the competition in the international market mainly depends on cheap prices. And this kind of cheap mainly depends on the cheap labor in China. This is a very serious problem: if the wages of the labor force are depressed for a long time, there will be no possibility of starting domestic demand, and China will further rely on external demand; Relying on external demand requires reducing labor wages to compete in the international market, and reducing labor wages will continue to suppress domestic demand.
Now let's look at our domestic economy, which is really a spectacle:
We constantly produce a large number of products and export them abroad, in exchange for a large amount of foreign exchange, but the domestic people can't consume them. In return, the country will return a large amount of foreign currency to the United States and other countries by purchasing the national debt of the United States and other foreign countries.
In this way, China's GDP marked by paper money has been increasing, but the wealth used for domestic consumption has not increased, and may even decline.
Due to the sluggish domestic demand, external demand accounts for a considerable proportion of total demand, so people think that external demand is more important and will further expand external demand at the expense of restraining domestic demand, so the national economy will further blur. Its performance is a large foreign exchange surplus and sluggish domestic demand.
A country's economy depends on the consumption of material wealth, which is the source of the next round of material wealth reproduction. How can we keep some colorful waste paper to make the country rich and strong? The United States has maintained a foreign exchange deficit all the year round, but it has become an economic superpower. This is a very important point. The foreign exchange earned by China's foreign trade has not been used to purchase the corresponding foreign material wealth for domestic development, let alone the $400 billion reserve. Even with $4 trillion, what's the difference with waste paper? We can sigh that we have tightened domestic demand in vain, but we are marrying someone else.
The success or failure of foreign trade lies not in your deficit or surplus, but in the added value of your products. If the added value of products is low, the more surplus you have, the more your national strength will decline. However, this economic analysis is not the content of this article, and will be analyzed later.
At present, the Bank of China is trying its best to curb the appreciation of RMB, and its intervention means is the standard western macro-monetary policy, that is, buying dollars and selling RMB. In order to prevent inflation caused by throwing RMB, on the other hand, we should tighten monetary policy and weaken the amount of money put in normal channels, so as to achieve the stability of a country's total money. This method is very dangerous, because although it seems that the total amount of money is stable, it strengthens the imbalance of the economy, and the normal business operation is limited by the tight monetary policy, but a large number of RMB are thrown out of the market. As a result, China's economy will fall into such a dilemma: the economy will continue to shrink, the demand will continue to dry up, and a large amount of RMB will become a hanging river, which may collapse at any time. Therefore, once the normal economy improves slightly, the central bank will have to be afraid that the flood of rivers will lead to inflation, so it will tighten its purse. Tightening the purse will not improve the economy. Therefore, the argument between two schools of economists, one group said that China's economy will be inflated, and the other group said that China is still deflating, is both reasonable and unreasonable. The key to fear is this hanging river, a sword hanging overhead. Without this hanging river, whether China's economy will shrink or expand will be clear, and there will be much less debate.
For the normal operation of China's economy, this suspended river must be cut off. Strengthen the monopoly profit tax, strengthen the fight against capital flight, implement the property registration system and add inheritance tax. Increase investment in public welfare facilities such as education, social security and medical care. Effectively protect workers' rights, improve the quality of China's labor force, and don't always take pride in cheap labor. Transforming export-oriented economy into inward-oriented economy. The above measures can be equivalent to the impact of the central bank's tightening of monetary policy on investment, but they can stimulate the enthusiasm of investment, increase consumption and cut off the hanging river, so it is not equivalent to just tightening monetary policy. For the current foreign exchange reserves, apart from maintaining the necessary part to stabilize the market, they should be used to buy strategic resources or technologies, and throw dollars out in this way, so as to deny the words of the international community, and at the same time use foreign exchange to build China, instead of covering the chest of foreign exchange like a miser. If China is forced to sell dollars by absorbing RMB in the future, and the Bank of China thinks that it is implementing the foreign exchange control policy, then China's decades of accumulation will vanish in an instant.
Bottom line: To solve the foreign exchange dilemma, we must settle down first.