Hide the huge risk of speculative revaluation
May 24th, 2011
Dollar depreciation, RMB appreciation, “not look so no two ways, of which there are still many variables. In this case, the gamble on how much the risk of RMB appreciation goes without saying. Once the U.S. dollar against the RMB exchange rate reversed, China has by law to take stringent capital controls, the RMB appreciation on the speculators, it may become a nightmare from the carnival.
At the end of 2008, 4, China’s foreign exchange reserves reached a record balance of $ 1,756,640,000,000. This figure represents an increase of 228.39 billion U.S. dollars in early, which added $ 74,460,000,000 in April, representing an increase $ 10,000,000 per hour. Many in the industry will be explosive growth of China’s foreign exchange reserves, explained that RMB appreciation is expected to lead the international “hot money” large-scale influx. If this is so, then this caused by the expectation of RMB appreciation in the currency speculation, is definitely an unprecedented gamble. The gamble involves many of the world’s interests, the result will determine not only trillions of dollars of wealth redistribution and security of the renminbi, the Chinese economy will also affect the global stability. Therefore, it’s prospects, attracted worldwide attention.
The surface, almost no risk of speculative revaluation. Most industry insiders believe that the strong and steady appreciation is expected, the 2008 annual appreciation of the RMB against the U.S. dollar rate would be 10% to 15%. Together with China and the U.S. spreads upside down nearly 200 basis points, so in theory speaking, as long as the can into the hands of U.S. dollars into China’s domestic banks to be able to enjoy 12-17% risk-free Facilitation. In such a logic, driven not only a large number of international “hot money” into China to do everything possible to be, even many mainland enterprises, individuals, and Hong Kong residents are also involved in the gamble of RMB appreciation among gluttonous feast.
But the problem is a wonderful thing you really have free lunch? If you sell dollars and buy yuan, will not lose, then the appreciation of the renminbi speculation it not become a fool can win the game?
Classical economic theory tells us that in mature markets, income and risk is proportional to the risk-free return is in fact not exist. To RMB appreciation is concerned, the ultimate risk-free arbitrage model can set up subject to many factors, most important of which there are two prerequisites. One is between the dollar and the RMB freely convertible, the free flow of RMB appreciation to a certain extent, the “hot money” to calmly get out; Second RMB against the U.S. dollar maintained a one-way appreciation, without any unexpected changes. From the current situation, these two prerequisites are clearly there is a considerable uncertainty.
First of all, China implements a managed floating exchange rate system, the renminbi under the capital is still not freely convertible. Therefore, in addition to FDI (direct investment) into China’s capital on behalf of the other various names in China, flows into and out of “hot money” are illegal suspect.
RMB is not freely convertible, meaning that the real meaning of the “hot money” must be a face-lift and out of China. The main channels are: a false trade, advance loans, inject false, false use of personal foreign exchange account donations, change of use after the settlement of external debt, external debt not yet due, etc.. These acts of evasion of exchange control basically fraudulent nature, is against the law, always face the risk of the relevant state department of. At the same time, we can be sure that China will not sit idly by “hot money” indiscriminate attacks on the RMB, China will not sit idly by the Asian financial crisis occurred in 1997-style currency crisis. For national security and economic stability, the state will severely crack down on illegal “hot money” flows.
To crack down on “hot money”, we must first crack down on “the ghosts.” If you do not help the domestic enterprises and individuals, the vast majority of “hot money” into China can not and can not comfortably withdraw from China. Therefore, to manage and “hot money”, we must first take control of these ignore the laws and regulations, as one for profits, “the ghost.”
Second, the uncertainty of the dollar is hanging in the “hot money” the head of a sword of Damocles. All acts of speculative appreciation of the renminbi is the starting point of long-term depreciation of the dollar, if the dollar reversed, it means the end of speculation.
Denied that the dollar is largely consistent with U.S. interests. On the one hand, it can dilute the foreign debt, reducing the U.S. budget deficit; the other hand, U.S. products can also increase the international competitiveness, improve trade structure, to reverse the huge trade deficit situation. Therefore, since 2001, the U.S. dollar laissez-faire. So far, the U.S. dollar against major world currencies have depreciated by 37% depreciation of the dollar that has been formed in people’s minds mindset.
It must be noted that the depreciation of the dollar is a bottom line that can not shake the dollar as the global currency. At present, the sharp depreciation of the dollar long-term, many international trade is no longer the U.S. dollar as the settlement currency, many countries began to diversify foreign exchange reserves in U.S. dollars single configuration, the dollar’s status as the world’s reserve currency has begun to waver. In particular, many oil-producing countries began to openly complain about the dollar and other currencies used the threat of oil, the dollar has caused tremendous stress. If you want to keep the U.S. dollar hegemony, we must take a strong dollar policy. I believe that this moment was coming.
First, because the weak dollar, international oil prices and soaring commodity prices, increasingly severe pressure on domestic inflation. In order to stabilize the U.S. economy, U.S. Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and other senior officials have recently let it be frequently expressed concern about the dollar. Although many U.S. officials have had lip service to the position, but now the U.S. economy is facing its own inflation risk, I believe that this round of position, or will play a substantive role. In addition, the subprime crisis weakened the impact of the United States, but also allow investors to regain confidence in the U.S. economy, which for the U.S. to re-create the conditions for strength.
Second, since 2001, the time of this round of depreciation of the dollar has been up to 7 years, from 1995 to 2001 period the U.S. dollar appreciation, the time just may be close to 7 years. If the cycle theory is valid, then the dollar is clearly approaching the end of this round of depreciation cycle.
Third, the U.S. presidential election approaches, U.S. international policy, especially Iraq policy, significant changes may occur, and the continued depreciation of the dollar’s biggest political factor is the Iraq war. The war in Iraq for the United States is a bottomless pit, a large number of military spending the U.S. budget deficit is soaring. But to cover the deficit, the United States the only option is to print tickets. If Obama eventually wins the Democratic candidate, and to honor campaign promise to withdraw troops from Iraq, then, that the dollar will be strong support, the dollar long-term depreciation trend will most likely be reversed.
Conclusion, “dollar depreciation, RMB appreciation” not look so no two ways, of which there are still many variables. In this case, the gamble on how much the risk of RMB appreciation is self-evident. Once the U.S. dollar against the RMB exchange rate reversed, and China’s capital controls by law to take stern measures, RMB appreciation on the speculators, it may become a nightmare from the carnival.
May 24th, 2011
Dollar depreciation, RMB appreciation, “not look so no two ways, of which there are still many variables. In this case, the gamble on how much the risk of RMB appreciation goes without saying. Once the U.S. dollar against the RMB exchange rate reversed, China has by law to take stringent capital controls, the RMB appreciation on the speculators, it may become a nightmare from the carnival.
At the end of 2008, 4, China’s foreign exchange reserves reached a record balance of $ 1,756,640,000,000. This figure represents an increase of 228.39 billion U.S. dollars in early, which added $ 74,460,000,000 in April, representing an increase $ 10,000,000 per hour. Many in the industry will be explosive growth of China’s foreign exchange reserves, explained that RMB appreciation is expected to lead the international “hot money” large-scale influx. If this is so, then this caused by the expectation of RMB appreciation in the currency speculation, is definitely an unprecedented gamble. The gamble involves many of the world’s interests, the result will determine not only trillions of dollars of wealth redistribution and security of the renminbi, the Chinese economy will also affect the global stability. Therefore, it’s prospects, attracted worldwide attention.
The surface, almost no risk of speculative revaluation. Most industry insiders believe that the strong and steady appreciation is expected, the 2008 annual appreciation of the RMB against the U.S. dollar rate would be 10% to 15%. Together with China and the U.S. spreads upside down nearly 200 basis points, so in theory speaking, as long as the can into the hands of U.S. dollars into China’s domestic banks to be able to enjoy 12-17% risk-free Facilitation. In such a logic, driven not only a large number of international “hot money” into China to do everything possible to be, even many mainland enterprises, individuals, and Hong Kong residents are also involved in the gamble of RMB appreciation among gluttonous feast.
But the problem is a wonderful thing you really have free lunch? If you sell dollars and buy yuan, will not lose, then the appreciation of the renminbi speculation it not become a fool can win the game?
Classical economic theory tells us that in mature markets, income and risk is proportional to the risk-free return is in fact not exist. To RMB appreciation is concerned, the ultimate risk-free arbitrage model can set up subject to many factors, most important of which there are two prerequisites. One is between the dollar and the RMB freely convertible, the free flow of RMB appreciation to a certain extent, the “hot money” to calmly get out; Second RMB against the U.S. dollar maintained a one-way appreciation, without any unexpected changes. From the current situation, these two prerequisites are clearly there is a considerable uncertainty.
First of all, China implements a managed floating exchange rate system, the renminbi under the capital is still not freely convertible. Therefore, in addition to FDI (direct investment) into China’s capital on behalf of the other various names in China, flows into and out of “hot money” are illegal suspect.
RMB is not freely convertible, meaning that the real meaning of the “hot money” must be a face-lift and out of China. The main channels are: a false trade, advance loans, inject false, false use of personal foreign exchange account donations, change of use after the settlement of external debt, external debt not yet due, etc.. These acts of evasion of exchange control basically fraudulent nature, is against the law, always face the risk of the relevant state department of. At the same time, we can be sure that China will not sit idly by “hot money” indiscriminate attacks on the RMB, China will not sit idly by the Asian financial crisis occurred in 1997-style currency crisis. For national security and economic stability, the state will severely crack down on illegal “hot money” flows.
To crack down on “hot money”, we must first crack down on “the ghosts.” If you do not help the domestic enterprises and individuals, the vast majority of “hot money” into China can not and can not comfortably withdraw from China. Therefore, to manage and “hot money”, we must first take control of these ignore the laws and regulations, as one for profits, “the ghost.”
Second, the uncertainty of the dollar is hanging in the “hot money” the head of a sword of Damocles. All acts of speculative appreciation of the renminbi is the starting point of long-term depreciation of the dollar, if the dollar reversed, it means the end of speculation.
Denied that the dollar is largely consistent with U.S. interests. On the one hand, it can dilute the foreign debt, reducing the U.S. budget deficit; the other hand, U.S. products can also increase the international competitiveness, improve trade structure, to reverse the huge trade deficit situation. Therefore, since 2001, the U.S. dollar laissez-faire. So far, the U.S. dollar against major world currencies have depreciated by 37% depreciation of the dollar that has been formed in people’s minds mindset.
It must be noted that the depreciation of the dollar is a bottom line that can not shake the dollar as the global currency. At present, the sharp depreciation of the dollar long-term, many international trade is no longer the U.S. dollar as the settlement currency, many countries began to diversify foreign exchange reserves in U.S. dollars single configuration, the dollar’s status as the world’s reserve currency has begun to waver. In particular, many oil-producing countries began to openly complain about the dollar and other currencies used the threat of oil, the dollar has caused tremendous stress. If you want to keep the U.S. dollar hegemony, we must take a strong dollar policy. I believe that this moment was coming.
First, because the weak dollar, international oil prices and soaring commodity prices, increasingly severe pressure on domestic inflation. In order to stabilize the U.S. economy, U.S. Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and other senior officials have recently let it be frequently expressed concern about the dollar. Although many U.S. officials have had lip service to the position, but now the U.S. economy is facing its own inflation risk, I believe that this round of position, or will play a substantive role. In addition, the subprime crisis weakened the impact of the United States, but also allow investors to regain confidence in the U.S. economy, which for the U.S. to re-create the conditions for strength.
Second, since 2001, the time of this round of depreciation of the dollar has been up to 7 years, from 1995 to 2001 period the U.S. dollar appreciation, the time just may be close to 7 years. If the cycle theory is valid, then the dollar is clearly approaching the end of this round of depreciation cycle.
Third, the U.S. presidential election approaches, U.S. international policy, especially Iraq policy, significant changes may occur, and the continued depreciation of the dollar’s biggest political factor is the Iraq war. The war in Iraq for the United States is a bottomless pit, a large number of military spending the U.S. budget deficit is soaring. But to cover the deficit, the United States the only option is to print tickets. If Obama eventually wins the Democratic candidate, and to honor campaign promise to withdraw troops from Iraq, then, that the dollar will be strong support, the dollar long-term depreciation trend will most likely be reversed.
Conclusion, “dollar depreciation, RMB appreciation” not look so no two ways, of which there are still many variables. In this case, the gamble on how much the risk of RMB appreciation is self-evident. Once the U.S. dollar against the RMB exchange rate reversed, and China’s capital controls by law to take stern measures, RMB appreciation on the speculators, it may become a nightmare from the carnival.