The best choice for the RMB exchange rate regime

 Interlocutors:
the People's Bank of China Yi Gang, Deputy Governor, State Administration of Foreign Secretary
Hu, Lin Yifu, a dinner party at home, the first time I saw Yi Gang. That year, he was 37 years old, years ago, to give up tenure in the U.S. home of Indiana University, and Yi, with her husband initiated the establishment of China Center for Economic Research of Peking University .
he was seen as now, or even face no big change, he sincere and frank, modest and calm, more like an ordinary person, an ordinary Chinese scholars. than the legendary Yi Fu, Yi Gang, the experience of looking is also not very tortuous. However, in my limited knowledge and experience was able to understand, reading, to get a PhD in economics and then enter the Tenure sequence, and then got tenure, it is very difficult but also an enviable success. is this Yi Gang, he got gave up, and then return to start how decisions and aspirations. with his calm peace, appear to be normal, there must be something which is not life and humanity waves, wave to make the flat fills.
Since then, Yi Gang, left teaching to enter the People's Bank of China, first as Monetary Policy Committee Deputy Secretary-General, and later as Secretary to the Monetary Policy Department, and finally gradually rose to assistant to the president, then the vice president to vice president last July as the same time as the Administration of Foreign Exchange .15 years We often talk, I also read his articles, listen to his speech, see Yi Gang may not have had to take a road envisaged, but also feeling, central bankers and, later, senior officials of the central bank Yi Gang, Or that Professor Yi Gang.
July this year in Beijing, the People's Bank Street, 9th floor office of his office, we are talking around a long table. people slightly, a bit crowded the table, talking protagonist himself Yi Gang actually sat on the corner of the table.
the 52-year-old central bank vice governor, SAFE Secretary, attention now should be to figure out the world financial community. However, he was calm, peaceful, normal, scholars Yi Gang .
ultimate goal and timetable for
Hu: June 19, 2010, the People's Bank of China announced in 2005 on the basis of the reform on RMB exchange rate formation mechanism to further promote the reform. Why did you choose this opportunity to continue to push forward the reform on ? how to evaluate the reform on the results achieved so far?
Yi Gang: China pursues the basis of market supply and demand with reference to a basket of currencies, a managed floating exchange rate system. In fact, this is China's socialist market economy system is currently the best option. Why do we say this is the best choice? on the exchange rate system reform, in fact, started since 1994 a .1994 unification of exchange rates on January 1, and then, on the establishment of the foreign exchange market up. from 1994 to 1996, two-way floating RMB, about 5% appreciation of the dollar against the yuan from about 8.71 yuan to 8.28 yuan. Later, after the outbreak of the Asian financial crisis, Thai baht and Korean won depreciated significantly. China not to depreciate. So, from 1997 until 2005, 8.28 yuan basically did not move. This does not mean we give up this idea, on the contrary, we adhere to this philosophy, continues to believe that such a managed floating currency is in line with situation of China's exchange rate mechanism, but, there is inertia, or that the there will be a 2005 to 2008, three years of floating.
this period, the RMB is actually a two-way floating, and with a basket of currencies to be consistent. But, in 2008, has seen a series of events, beginning with volatility levels. until June 19 this year, we further advance the reform of RMB exchange rate.
reviewing this history, we can see, this is the mechanism we have been insisting. simply because the crisis or other factors, only so many episodes. However, this direction is the best choice, we should insist on this direction.
Hu: what is it that the ultimate goal?
Yi Gang: Our ultimate goal, making the yuan a convertible currency, which the Third Plenary Session of the Fourteenth Party, that is, the fall of 1993, has already decided.
Hu: So, the exchange rate between the RMB convertibility and what kind of relationship should be? is it free-floating later be able to freely convertible, or a managed floating exchange rate mechanism can also be freely convertible?
Yi Gang: This is a problem of the color richer theory. Usually, convertible currency, its exchange rate is free floating. < br> In the history of the Bretton Woods Conference, 35 dollars is equal to one ounce of gold, the dollar was pegged to gold, talk to other major currencies pegged to the dollar, which is essentially a fixed exchange rate system. However, when the Bretton Woods system in 70 years after the disintegration of the 20th century, the major international currencies and gold decoupling, the disintegration of a fixed exchange rate system. In theory, convertible currency should be floating exchange rates. floating exchange rate of the mechanism itself of the stabilizers may be convertible currencies, is because it is floating in order to ensure its convertible.
there is an extreme example of the implementation of the Hong Kong and other places of currency board system, it is a special arrangement to give up monetary policy. a small and open economy can fully implement such a system. However, these economies should be regarded as an exception, not universal. generally in a convertible currency, its exchange rate mechanism should be flexible. a more developed country, or a more mature emerging markets, which ultimately should choose the monetary policy independence and free capital flows. Well, it can not uphold what is it? is the fixed exchange rate. the United States, the euro area it is. the dollar and euro fluctuations, this is a market behavior.
Hu: That the RMB How long convertible goal be achieved? have any timetable?
Yi Gang: In China, there is no official convertibility timetable. However, the statistics of the International Monetary Fund, the general country, from the current account convertibility to capital account convertibility of the time, average time is about 7 years to 10 years. China is to achieve in 1996 the current account convertibility.
then to now has been 15 years, and this has been longer than the international the average of the. We no timetable, however, reference to international practice, people can have a general judgments on the matter. the main reason is that Chinese large and uneven development, the problem is more complex understanding of the unity of is also more difficult.
Hu: For the currency appreciation, we all know that more obvious external pressure, while the Chinese economy which has its own needs. Taken together, floating the RMB is not so far mainly from the pressure of what it?
Yi Gang: a currency, exchange rate fluctuations that really works is the real effective exchange rate. In fact, only two channels to enable the real effective exchange rate change. a channel is the nominal exchange rate adjustment. There is also a channel is through domestic prices: There is appreciation of the pressure, but can not adjust the nominal exchange rate, inflation can also play the role of real effective exchange rate adjustment.
fact, the past decade, the face of such pressure, these two channels in China are used. We only use the nominal exchange rate adjustment, China has made through the price adjustment is also a great channel. Think about it, the number of years house prices rose?
Hu: Now, after several rounds of exchange reform, the RMB appreciation is not expected to have weakened? also need to continue to adjust with inflation the way up?
Yi Gang: It should be said that the pressure has diminished a lot over the past decade, Beijing, Shanghai, housing prices have gone up by how much? how much the general price rise? These prices are actually not balanced to adjust the exchange rate. If ten years ago to take some U.S. dollars and buy a house in China, earn how much? earn's not much it seems. Other assets are transferred almost the same. This shows that in fact, from the equilibrium exchange rate is now higher than in nearly a decade ago has been a lot.
So now, we do not have the basis of exchange rate volatility, conditional to maintain a flexible exchange rate regime, can keep the exchange rate at a reasonable and balanced level basically stable.
central bank being in fact explains a lot, what are the pros and cons. The Chinese economy continues to improve labor productivity determines the overall trend of currencies. In this trend, the appreciation can curb inflation. a little more appreciation, inflation to be less. If the nominal exchange rate fixed, and that inflation is a little more. It is said that people do not have imported products, they did not appreciate the benefits of this is wrong. For example, soybean oil, more than half of China's soybean imports, and thousands of families had to eat soy products, soybean meal can be pigs, how many people do not eat pork? If you do not appreciate, then soybeans, soybean oil, Soybean meal prices are more than 20% of your now. Now why are these products in the international prices have soared, but the price did not rise in China so much? is because the appreciation of the renminbi, while soybean prices denominated in U.S. dollars basically. crude oil , iron ore, the truth is the same, in fact, crude oil and iron ore is also connected with the thousands of families. appreciation of the first imported inflation restrained.
In addition, there are so many citizens to travel abroad, send their children to study abroad These people have benefited. beneficiaries should be said to be exchange reform in 2005, before the cost of the departments concerned did swap business survey results, the state-owned enterprises 8.11 yuan currency exchange costs, exchange costs of private sector enterprises is 8.07. exchange costs means that as long as rates below this level, these companies will lose money. If this is the case, the first day of 2005, the reform on RMB exchange rate to jump to 8.11 yuan, and that exporters should appear large losses. However, since the exchange rate reform, China exports in the period 2005-2008 is close to 30 per year more than 20% of the rate of growth. That is, exchange rate adjustment does not affect exports, but substantial growth in exports, industrial upgrading, technological progress, product upgrading, and enhance China products added value, are occurring in this period have taken place.
Therefore, we have to look at this issue dynamically. The Government is also doing everything possible from the policies to create favorable conditions and environment, for example, to provide a hedging instrument, forward foreign exchange , the forward purchase of foreign exchange and other tools to help import and export enterprises to hedge risks.
Another argument that is equal to the appreciation of foreign reserves losses. faster appreciation in 2007, when there are observers say a quarter of foreign exchange reserves loss of an aircraft carrier. Now, we have 2.45 trillion U.S. dollars foreign exchange reserves (equivalent to over 16 trillion yuan), when the RMB appreciation, these reserves with the value of the RMB to have less marked, which he said is equivalent to loss was. In fact, this account be regarded as wrong. because, first, we did not lose, when will lose it? only the foreign exchange from U.S. dollars into RMB when the only loss, but we do not change, so can not be called loss. This algorithm is completely converted book.
If you have to calculate this book, we must also calculate the Chinese yuan assets in dollar terms real estate assets combined, about two hundred trillion yuan, (more than 10 times the foreign exchange reserves). If the yuan appreciation, these assets denominated in dollars, the equivalent of at least ten aircraft carriers make. Of course, in fact, both did not happen.
Hu: Yes, he did not count the assets of the RMB, and the Chinese people's savings can also be appreciated.
Yi Gang: I think so. So, this question should be a comprehensive look. In short, the loss and make a fact never happened, but with a different reporting currency generated an illusion of perspective. Of course, U.S. inflation will result in lower purchasing power of foreign exchange reserves can be said is that is losses. But in recent years over the years, foreign exchange reserve rate of return is higher than the U.S. inflation rate.
Hu: I heard you had talked to a point, that is, if the exchange rate is not normal, it will put pressure on resources and the environment, can you talk about you more ?
Yi Gang: If the nominal exchange rate distortions, it will produce a series of consequences. exchange rate is a price, which will inevitably bring about distortions in resource allocation distortions. We usually say that to expand domestic demand. If the exchange rate does not, it is easy to make money in foreign demand , businesses will not be hard to domestic demand. exchange rate distortion is not conducive to expansion of consumption, is not conducive to expansion of services.
Hu Shuli: the face of inflationary pressures, it was argued interest rates, which can replace each other and exchange rate lever up?
Yi Gang: interest rates, capital prices, a currency exchange rate parity relative to other currencies; interest and exchange rates each alternative role is very limited. They have a far from equilibrium problem. This can lead to endless debate Because no one knows where is the equilibrium point. In theory, supply and demand determine the equilibrium point. the best case, is very close to the equilibrium exchange rate, the interest rate is very close to equilibrium.
if the rate hike, then this currency will be strong, recently, interest rates in many currencies, but the U.S. dollar, euro, yen, pound sterling, are not raising interest rates. ideal state is the exchange rate and interest rate carry out their duties, because their role is not the same .
Hu: Long-term use of a fixed exchange rate, causing a certain amount of distortion, has now become floating at this time, in addition to conceptual problems, the biggest threat or speculative attacks, right?
Yi Gang: Yes. Therefore, we should continue to release these risks. With the growing role of the market, speculation that the exchange rate will be, if not entirely balanced, at least, have to make it a Unfortunately, no money to make.
Hu: foreign exchange reform, stop and go, is not in the mastery of rhythm, or a little bit slow?
Yi Gang: China is a large developing country, more than 30 years, China has created human history, the miracle of economic development. From this sense, China's macroeconomic policy to achieve the transition. Some foreign observers believe that this is not the market, and that reform lags behind, but, from 1994 to the present, China maintains high growth and inflation since 1994, after that round, there have been no high inflation.
comprehensive, China's macroeconomic policies, should be close to optimal. We stop and go, Perhaps some people think that the reform on a number of slightly slower, this problem can be discussion and reflection. However, it should be said that the overall macroeconomic policy is still very successful.
Hu Shuli: Why choose this opportunity now to restore the flexibility of the exchange rate it? mainly due to the risk this time is relatively small, or that the external pressure becomes larger it?
Yi Gang: China has made this decision, mainly based on domestic considerations, made the decision independently. I just said , the global financial crisis, exchange rate stability for some time. In fact, it can be said that the crisis has not yet passed, for example, this year took place in the European sovereign debt crisis, but, generally, when the situation is much better than the height of the crisis . the one hand, the crisis subsided, on the other hand, last year's growth rate has increased, from 8.7% to 9.1% of the transferred. For the United States, Europe and most of the Japanese economy is also forecast that 2010 is the year of recovery. Consolidated domestic and international situation, from the Chinese perspective, I think now resume this flexibility, the conditions are mature.
Hu: But, how to evaluate the exchange rate reform and the role of external imbalances in it?
Yi Gang: foreign scholars come from their analysis of the framework that the exchange rate rebalancing is a very important factor. In fact, history shows that the exchange rate is indeed very important, but it is not a decisive variable. Recalling the history of Japan and Germany, can clearly seen. Japanese yen and German mark in the last century 70's, 80's appreciation, and did not lead to a surplus of Japan and Germany immediately disappear. This is also the case in China. But the most difficult one to answer this question, is in turn asked if the exchange rate appreciation has also unable to adjust China's trade surplus, then, to take advantage of the appreciation of not only not suffer? Do you think, if I appreciated, and I buy you anything cheaper, and the results have not adjusted my own surplus down, it is not you just take advantage of the appreciation is not to lose it? more difficult to answer this question.
how to become a ; makers?
Yi Gang: This is a big problem. We often say, to participate in the international rules of the game. the so-called international monetary system, who is the rules of the game is really necessary? United States and other major developed countries is clearly . So, why is it that rules of the game makers do? is because the U.S. markets are open, is the world's financial markets, the main market. So, in these markets, whether equities or bonds, the market rules of the game-makers course the United States and Europe and other countries. Why can not we as game makers? because of our financial market is not open. If China's market opening, as long as people entered the Chinese market, and that the Chinese monetary authorities and the regulatory authorities of course, rules of the game makers There is no dispute.
Hu: I recently spoke with Russian First Deputy Prime Minister Igor Shuvalov, sooner or later he thought to be the reserve currency the renminbi, and the ruble up to become a regional currency. how do you see?
Yi Gang: We can not think China has its own incredibly carried away, which is very harmful. China is still a developing country, to have self-knowledge.
Hu: It is impossible for renminbi has become a reserve currency it? the world have This demand it?
Yi Gang: It's, half of the Chinese wear a dunce cap, half of them also reflected a prediction. We should be modest, or to keeping a low profile. If people choose RMB as reserves money, we do not block, it is market demand. However, we do not push hard, I think this is one of the best, the best to choose. Do not give people a flatter, I feel really RMB very close from the reserve currency, in fact, far worse.
Hu Shuli: a currency as a reserve currency is a natural choice for the market results? still need the government to the final word or two to promote each other?
Yi Gang: A currency as a reserve currency, first by virtue of the country or the State Union's economic strength; followed their cultural cohesion and appeal; Third, the political and military strength.
economic strength is the first, culture is the second . cultural appeal is very important, your core values, which determines the majority of you can not be accepted in countries and regions. the real reserve currency, it must be relative in the world, its culture and values behind influential.
Do not underestimate the ability to repair
Hu Europe: Two years ago, relatively deep financial crisis, when the outside world, including some in China, too bearish on the U.S. and the euro too good. Then, The debt crisis in Europe that the China's foreign exchange reserve investments. We adhere to the foreign exchange reserve diversification, decentralization, referring to the currency and assets of two levels. currencies, that is in dollars, euros, yen, pound sterling, the emerging national currency, sterling, etc., have a diversified investment. In the decision to invest in a particular currency, the next step is to decide on the currency, is to buy bonds, or buy other assets, that is, the assets have diversified. back to you just question, we have not for a particularly bearish on the dollar, for a particularly bearish on the euro. We are such a big plate, it is impossible to adjust in a very short period of time. We adhere to the principle of decentralization, in fact, an asset configuration principle.
principle that asset allocation is based on what determines it? is a reference to set China's real economy, according to the proportion of trade with China, then the ratio of FDI, there is a factor is the ratio of settlement. < br> Hu: China's foreign exchange reserves in the past few comments on specific investment, but the recent to the so important because they are the real estate market in the United States plays a key role, and critical to the stability of financial markets. sub-prime mortgage crisis initially, the U.S. government also relies on the two institutions to ease the crisis, as the crisis deepens two institutions there is a problem, the U.S. government subsequently took over the relevant provisions of the delisting, but the large, every move will impact on the market. While we will gradually spread to all foreign exchange and financial market knowledge, on the other hand, also need to express their views carefully and steadily to avoid speculation by market speculators took the opportunity to influence financial market stability. < br> Hu: After the financial crisis, Europe, the United States made some adjustments, repair, how do you view their ability to repair?
Yi Gang: their repair capacity is very strong, we must not underestimate the United States and Europe . the United States through the financial regulatory reform bill, following the Glass - Steagall Act and President Clinton signed the bill of modern financial services, another milestone, this is the history of the past few decades, especially in this round of financial crisis reflection. The bill, coupled with the recent UK regulatory framework for new financial road map, as well as G20 financial stability under the guidance of the Council, the International Monetary Fund, the Basel Committee, Bank for International Settlements, worked out a series of financial regulatory standards, constitute the next decade, if not longer, the world standards and regulatory framework for financial supervision. In this regulatory framework, and their repair capacity is relatively strong, repair speed is relatively fast.
on international financial regulatory framework in place, the Europeans have made many contributions. Of course, regulatory reform bill in the United States after the passage of the Americans walked in the front.
Hu: Recently, I told Mike b Evans, Vice-Chairman of Goldman Sachs talked about. He said Goldman Sachs ready to adjust its strategy. It turned out that the Wall Street financial bill also compared the U.S. boycott. He said Goldman Sachs to adjust the positioning, support financial reforms. Secondly, the Commission has set up a commercial standard (Business Standards Committee) through investigation and reflection, and ultimately change the Goldman Sachs business practices proposed specific measures. In speaking with the Securities and Exchange Commission's lawsuit, he said, although the cases of political factors, we have to admit fault. listen to his tone, possible reconciliation, but he stressed that reconciliation does not mean the end, Goldman Sachs, or to adjust business practices. But on the other hand, now the U.S. evaluation of the parties to the financial reform bill so high, why has it so hard to push it? Why is strongly Republican against?
Yi Gang: hard drive, mainly because of interest. The bill hurt some investment banks, commercial banks some of the provisions of interest, has worn a lot of peace, made some compromises. In general, I think The bill is more positive, why? quickly introduced the bill, much better than the unresolved. unresolved is the uncertainty, the introduction of the bill a, equal to boots landing on the market, expected to be stable , the normal operation of the market can.
see a calm state of mind
Hu of China's economic growth: the macro I would like to ask this, do you feel now the global economy Big?
Yi Gang: The short answer, I think in between 2.5% m3.5% more reliable, and Japan should be a positive growth this year, even more than 2% taller. Europe could at 0.5% m1.5%. This result must not be called second bottom. : China's economic growth of 9% over the year, it should be said that growth is quite high. high growth is a complex. Now, I want to enter some more peace of mind. In this way, to make China's economic growth continued to be of longer. China is in fact is now the world's second largest economy. growing economic base, positive growth should gradually slow down, this is the first point. Secondly, the environmental constraints have been strained to an unprecedented time. groundwater, air, carbon emissions, and so on. Another is resource constraints, including energy imports. in accordance with the laws of humanity in terms of economic growth, China's future economic growth will gradually slow down some of the positive.
30 years of reform and opening up, China's average annual GDP growth rate of 9.5% over the first decade of the new century, China's growth rate has exceeded 10%. the second decade, if the average growth rate of 7% m8% of the words I think it is a high growth rate, the question is can we sustain a growth rate. Then, we depend on third decade, to be able to maintain 5% m6% growth, then China has achieved 50 years of rapid growth. This is not in human history ever.
problem is that China's economic growth quality, which is why we now have to adjust the structure, to change the development mode, and its true meaning is in improving the growth quality and efficiency. should consider himself a more peaceful state of mind a little tune.