RMB exchange rate trend and exchange rate risk management
2015-06-12
Firstly, it is controversial on RMB exchange rate trend. On the one hand, as the exchange rate of RMB against US dollar had declined to the down limited for several time since early this year amid panic, some agencies declared that it was about when but not whether RMB would depreciate. On the other hand, market confidence was strengthened on the announcement from Premier on China's NPC & CPPCC 2015 Annual Sessions that RMB would not depreciate to stimulate exports. So it is controversial how RMB will perform.
Secondly, global trade is growing slowly and China鈥檚 exports show new normal status. Doctor Zhao said that RMB depreciation was resulted from China鈥檚 foreign trading volume fell short of target for consecutive three years. Therefore, professors suggested to depreciate RMB to stimulate exports and pull up Chinese economy. Moreover, he pointed out employment was improving in some countries via re-industrialization, relying on self-production instead of imports. So, growth rate of global trade is slowing down. However, China shows a favorable exporting performance and may embrace for a new normal status.
Thirdly, factors that affected RMB exchange rate and the prospect of RMB. In terms of global economy, U.S. government鈥檚 stances is playing an important role in RMB鈥檚 prospect as U.S. has the largest trading deficit with China. Moreover, that RMB is expected to depreciate is also credited to stronger US dollar. Meanwhile, interest rate is expected to be raised in latter half 2015 in U.S. and U.S. dollar index is more likely to move up, which may affect RMB鈥檚 exchange rate as well. In terms of China鈥檚 domestic economy, RMB鈥檚 exchange rate was regulated on the bases of a basket of currencies. And China鈥檚 trading surplus will provide support to the exchange rate. Therefore, it is estimated that the fluctuating rage of RMB鈥檚 exchange range will widen to 5% throughout this year. Generally, Doctor Zhao believes that the exchange rate is more likely to rise.
Fourthly, exchange rate鈥檚 impact on trade and risk management. Theoretically, RMB depreciation is beneficial to exports. However, it remains unclear how much more margins exporters will gain because of RMB depreciation because that foreign traders may actually ask for lower prices of exports if RMB depreciates. Moreover, Doctor Zhao shared his opinions and experiences on how to manage risks.
Lastly, Doctor Zhao warned that risks were existing and investment should be carried out discreetly.
