One is about the appreciation of RMB and the shrinkage of foreign exchange reserves. There is a view that China's foreign exchange reserves will shrink if the RMB appreciates against the US dollar. Is this understanding correct? I don't think this understanding is appropriate. Whether the foreign exchange reserves have shrunk cannot be measured only by the currency you choose. If you choose a currency that depreciates against the US dollar, foreign exchange reserves will increase. The change of foreign exchange reserve stock does not depend on the value of RMB, but on the currency and quantity of foreign exchange reserve. For example, China's foreign exchange reserves are mainly US dollar assets. If the purchasing power of the US dollar and the asset price of the US dollar do not fall, the foreign exchange reserves will not shrink. If the purchasing power of the US dollar and the asset price of the US dollar fall, the foreign exchange reserves will shrink. From the point of view of national management of foreign exchange reserves, the measure of whether foreign exchange reserves shrink mainly depends on its external value, not its internal value. For domestic residents, it is different. The appreciation of RMB makes it worthwhile to buy foreign exchange, but not to sell foreign exchange. For the central bank, the RMB released by buying foreign exchange after RMB appreciation is relatively small, which reduces the pressure of the central bank's sterilization intervention.
Second, the RMB has appreciated against the US dollar, and the RMB has become valuable. This is also a specious conclusion. At present, China's RMB is characterized by "external appreciation and internal depreciation". With the appreciation of the RMB against the US dollar, the RMB has become more valuable, that is to say, the purchasing power of the RMB abroad has increased, but the purchasing power at home has actually decreased. In other words, the RMB will be "really valuable" only when you convert it into dollars and spend or invest in dollars abroad. For most ordinary people, there is no external transaction. Because of inflation, the renminbi has not become valuable, but has become even less valuable.
Third, the appreciation of the renminbi against the dollar is conducive to curbing prices. This problem cannot be viewed one-sidedly. It is generally believed that the appreciation of RMB against the US dollar will reduce the amount of RMB needed to import the same US dollar-denominated products from the United States, so the RMB pricing of imported products will be reduced, which excludes importers from being monopoly manufacturers. If the importer is a monopoly manufacturer, the price of imported products may not necessarily fall. In addition, the RMB depreciated against the euro. If imported from Europe and priced in euros, the RMB pricing of imported goods will rise instead of falling. Does it matter if imports from Europe are priced in dollars? It doesn't matter, because European products are priced in euros. If denominated in dollars, the price of European products denominated in dollars will also rise, and the dollars paid by importers will also increase accordingly. In addition, when China imports products priced in US dollars, the amount of US dollars paid by importers has not decreased. Importers have to buy dollars in RMB. As the RMB appreciates against the US dollar, the amount of RMB paid for buying the same amount of US dollars will decrease. Although importers benefited from the appreciation of RMB, the state sold foreign exchange to exporters, and the losses fell on the government. Because RMB is not a freely convertible currency, it cannot be paid directly. At present, the international oil price rises, and the appreciation of RMB can't hedge the oil price rise like the appreciation of euro, Japanese yen and other currencies against the US dollar, because RMB is not an international currency, and the exchange gains obtained by domestic importers are actually equivalent to the subsidies given by the state, because the state sells you foreign exchange cheaply.
Fourth, whether the appreciation of RMB against the US dollar attracts speculative capital inflows or prevents speculative capital inflows. Due to the US subprime mortgage crisis, the Federal Reserve kept cutting interest rates, the US dollar continued to weaken, and the RMB appreciated against the US dollar. If the RMB appreciates by 10% against the US dollar every year and speculative capital flows in for one year, even if you do nothing, you can get more than 10%, which is very attractive to speculative capital. In fact, what attracts speculative capital inflows is the trend and expectation of RMB appreciation. Some people think that RMB should appreciate sharply at one time to eliminate the expectation of RMB appreciation and ease the pressure of RMB appreciation. However, a one-off large-scale appreciation will lead to rapid profits of domestic speculative capital. Whether speculative capital can be prevented from continuing to flow in depends on whether the large-scale appreciation of RMB can eliminate the expectation of RMB appreciation. If expectations can be eliminated, it will help ease the appreciation of the RMB.
Fifth, some people advocate relying on the inflow of hot money to restore stock market confidence. At present, the appreciation of RMB is accelerating, and speculative capital is ready to move, coveting the China market. Some people think that the inflow of hot money is conducive to stimulating the stock market. This view is somewhat similar to quenching thirst by drinking poison. The so-called "hot money" is short-term speculative capital in the international financial market. Its purpose is to make use of the arbitrage space in the pricing of interest rates, exchange rates and asset prices in other countries' financial markets to make profits, or to constantly push up the asset prices of this country, and then make profits at a high level, which will inevitably disrupt the financial markets of this country. For ordinary investors, the healthy development of the stock market is the basis for investors to make profits, while the stock market prosperity brought by speculative capital is short-lived. Once the profits flee, it is the ordinary investors who are finally locked in.
Since the exchange rate reform, some topics about RMB appreciation have attracted people's attention, such as "RMB appreciation, China's foreign exchange reserves have shrunk, and RMB is more valuable". After analyzing the hot issues about RMB appreciation, the author thinks that economic phenomena themselves are often complicated and need to be analyzed in detail, and people often cannot understand the essence of these phenomena. (