A long time, as addicted Pang Shi games supported by excessive consumption, United States of various types of debt: residents debt (mortgage debt), corporate debt, soaring public debt, finance and external debt. After the global financial crisis, United States financial situation also deteriorated sharply. These data suggest that, in the foreseeable future, the United States public debt can only be on the wane.
Now few people believe the United States has the ability to repay debt. For the United States, in flagrant breach of contract is not necessary. US dollar position as an international reserve currency, United States Treasury bonds are dollar-denominated and settled in, just keeping the printing press, servicing without problems. However, this must ultimately lead to hyperinflation. Even though no outbreak of inflation in a long time, due to the increase in dollars and no real support for economic growth, the real value of the dollar has been diluted.
When one day when we used foreign currency reserves to buy goods and services, will suddenly find its purchasing power has greatly diminished. United States national debt indeed already lose their AAA-level status. United States of raising debt ceiling of the two parties arguing and biaopu on United States national debt downgrade, only symbolic meaning and no real significance. Regardless of whether the debt ceiling increase, and regardless of whether the demotion, United States national debt is not safe is an indisputable fact. If the dollar is not the world’s reserve currency, if not for some countries are still on the United States Treasury security illusions and continue to increase its stake in United States Treasury bonds and a United States sovereign debt crisis would have happened.
Although we have seen holding United States Treasury bonds and the risk of all kinds of disadvantage, still increase significantly our foreign exchange reserves: $ 2010 growth, 2011 and increase of US $ 350 billion in the first half, of which, is likely to further increase its stake in the United States Treasury bonds. As Keynes cloud: If you owe the Bank of 10,000 pounds, you mercy by the Bank. If you owe the Bank 1 million pounds, the Bank from your mercy. Now United States owed more than 1 trillion dollars in China, you say that China can do? For China’s stock of foreign exchange reserves of a hedge, we have now cannot think of more ways – mentioning the “dollar trap”. For China, the most important thing to do now is not to further increase foreign reserves.
China into dollar trap of reason is very simple: in the past 20 years, almost every year in China to maintain current account and capital account surplus. In the case of dollar supply greatly exceeds demand for dollars on the foreign exchange market, in order to control the appreciation of the Renminbi, the Central Bank’s continued intervention in the foreign exchange market, buying dollars to throw a RMB. This will inevitably lead to increasing foreign exchange savings.
As early as 1983, Chinese scholars, it was noted that “double surplus” irrationality. In the late in the 1990 of the 20th century, also occurred a fierce debate on foreign exchange reserves within the Government. Since 2002, many economists continue to remind the parties concerned, excessive accumulation of dollar reserves is not only incorrectly configured resources, and there is a huge risk. However, due to concerns over employment and economic growth, the parties concerned and not to “broken wrist Heroes” was determined to make policy adjustments. Chinese double surplus continuing, foreign exchange reserves of more than 400 billion dollars by 2003 growth to $ 3.2 trillion currently.
By any standards, China’s foreign exchange reserves have been far more than a reasonable level. In recent years, the Government introduced a series aimed at redressing the balance of payments imbalance, measures to reduce the speed of accumulation of foreign reserves, including stimulating domestic demand, gradual appreciation of the Renminbi, foreign exchange reserves constitute a diversified, promoting the reform of international monetary system and the RMB’s internationalization. These measures to correct the imbalance of China has played a role. But the rapid increase in foreign exchange reserves continued.
The reason: caused by all those policies and measures to avoid a direct reason for the surge in foreign exchange reserves: while there are a large number of “double surplus” case, in order to maintain the stability of the Renminbi exchange rate against the dollar, the central banks continue to buy dollars on the foreign exchange market. If you do not want foreign exchange reserves continued to increase, the Central Bank will have to stop intervention in the foreign exchange market. We cannot on the one hand firmly against the appreciation of RMB – even if it is tiny, excessive and accused the administration of foreign purchases of United States Treasury bonds. This attitude is not only unfair and contradictory.
Many people believe that a floating exchange rate would lead to instability, this is a misunderstanding. Pegged exchange rate system and not necessarily promoting macroeconomic stability. Renminbi maintaining stability of the Renminbi value of the dollar’s stability cannot be. In cases of substantial fluctuations in dollar against other currencies, the dollar value is very unstable. Keep us dollar highly stable renminbi is indeed absorbed its instability. Larger economies in the world today are basically adopted a floating exchange rate system, in the context of global economic integration, floating like a buffer or a firewall, on the one hand can automatically reduce the impact of external shocks on the domestic economy, thus maintaining the independence of monetary policy in China on the one hand, more conducive to domestic economic stability.
In addition, the renminbi is beneficial for the Government to achieve inflation control in 4% the following goals. Revaluation to reduce the overall price of trade goods, have a direct help to curb inflation. In addition, due to the hedging of the Central Bank on capital inflows, the accumulation of foreign reserves is already one of the most important drivers of inflation. Ending market intervention will rid the people’s Bank of burden on hedging, focused on fighting inflation.
After floating and revaluation, China must accept the fall in exports and increase in unemployment rate. From Japan, and Germany experiences of that year, sharp currency appreciation in the short term have a significant impact on exports, but exports after 2-3 appreciation will return to previous growth trend, appreciation of greater impact is the real import of massive expansion. At present, China faces a threat of inflation, overall balance of the labour market, China’s financial health, overall macro-economic background of the significant appreciation of the renminbi is good. Even if there were some problems, the Government can help businesses and workers tide. Should also recognize that currency appreciation pressure for business is not a bad thing, is the fittest and upgrade process of the upgrade process, is the process of service industry development and growth, which see very clearly on the experience of East Asian economies. We cannot always say to promote economic structural reform, to develop the service industry, industrial upgrading, but shelved changes in market prices means pushing them aside.
Admittedly, ending Central Bank intervention in the currency market is a highly complex issue, details determine success or failure. Of particular note is that once the Central Bank stopped intervening, so-called exchange rate overshooting phenomena may occur. In anticipation of a further appreciation, a lot of speculative capital will rapidly into China, so as to further push up the Renminbi exchange rate. To prevent overshoot, strengthen capital control is necessary. Regardless of “hot money” inflows, should hold back. An important trend in the field of the current international financial are: increasing number of emerging economies in the use of different forms of capital controls to maintain financial stability in the country, while developed countries also on the tolerant approach to capital controls. Another important issue is that the Government should further accelerate infrastructure construction of capital market and money market for the Enterprise offers a variety of financial instruments in order to enable foreign enterprises to lock exchange rates risks.
In short, in the long term, we need to rely on structural adjustment to reduce “double surplus”, thereby reducing the increase in foreign currency reserves. In the short term, we must choose between appreciation and increased foreign exchange reserves–either decrease (or stop) revalue Central Bank intervention (or floating), or continue to increase foreign reserves. There are only two alternatives, not co-existence strategy.