At the end of December 2020, Standard Chartered Bank issued a prediction-eight major “black swan” events in 2021, calling them “unlikely to occur, and once they occur, they will subvert the financial market.” The first among them is Biden. Resignation, another thing is that the RMB exchange rate against the US dollar rose above 6.0.
What does “breaking 6” mean? This is equivalent to saying that the RMB will appreciate by nearly 8.8% again this year! Throughout 2020, the cumulative appreciation rate of the RMB throughout the year was close to 7%, and the highest appreciation rate since May has exceeded 9%.
Standard Chartered Bank lists it as one of the eight “black swans” in 2021. Obviously this is an unlikely situation.
So how will the RMB exchange rate go in 2021?
Economists have different opinions
Director of China Chief Economist Forum (CCEF), Bank of China Securities Global Chief Economist Guan Tao believes that the RMB has accumulated a certain amount of gains in 2020. If there is no negative news in the next month or so, there is a high probability that the RMB exchange rate will rise with inertia in early 2021. However, there are uncertainties in economic recovery. The strengthening of the RMB in the second half of 2020 is because China’s economy took the lead in recovering. If the global economy gradually recovers in 2021, it means that China’s leading advantage in economic recovery will narrow.
Guan Tao pointed out that at the same time, if the domestic economy falls below normal levels in 2021, it may increase the pressure to adjust the RMB exchange rate. In view of the many internal and external uncertainties and unstable factors in the future, it is too early to say anything about the new cycle of the RMB exchange rate.
Liu Ligang, chief economist of Citibank China, believes that more overseas capital will flow into the country this year, prompting further appreciation of the renminbi. “We still believe that the RMB exchange rate can reach 6.3 by around June this year. Now it seems that this expectation should be more conservative, because the RMB has already exceeded 6.4. By the end of the year, we think the RMB will further appreciate to 6. There is even a possibility of breaking 6.”
Wang Dan, chief economist of Hang Seng China, said that there is a high probability that the RMB exchange rate against the US dollar will rise above 6 in the first quarter. Wang Dan explained that the trade surplus between China and the United States remains high, and China’s export momentum is still strong and even stronger; at the same time, compared with productivity, China’s technological progress and industrial chain upgrades are rapid, so the RMB faces strong appreciation pressure.
Shen Jianguang, chief economist of JD Technology and director of the research institute, believes that the fluctuation of the RMB will increase in 2021, and the central parity rate of RMB against the US dollar may reach around 6.1 within the year, “breaking 6” is unlikely.
The reason is that, on the one hand, the decline of the US dollar may slow down in 2021. On the other hand, excessive exchange rate appreciation is not conducive to trade and affects export competitiveness. At the policy level, the financial sector has introduced a number of countercyclical measures in recent months, lowering the foreign exchange risk reserve ratio and macro-prudential adjustment parameters for corporate cross-border financing, demonstrating the policy orientation of preventing excessive exchange rate appreciation.
CICC believes that in the short term, the strengthening of the RMB is still supported by five factors. First, the risk premium is expected to decline further; second, the shadow interest rate differential between China and the United States is still moving. The third is the Spring Festival effect; the fourth is that before the world emerges from the haze of the epidemic, my country’s exports may continue to perform well; the fifth is the relatively friendly external environment brought about by the weak dollar. The RMB may have room for appreciation of about 1.5% in the first quarter (6.35).
But looking forward, the RMB may face a certain risk of correction. On the one hand, the phenomenon of “strong exports and weak imports” after the global resonance recovery will be difficult to sustain, and the current account surplus will There is a high probability of narrowing; on the other hand, after the vaccine is rolled out, the exchange rate may be under pressure due to the narrowing of interest rate differentials; in addition, the US dollar will also face greater uncertainty in the second quarter and beyond. At the same time, it is expected that Biden may focus on domestic affairs in the early days of taking office, but in the future, he still needs to be wary of the possibility that the U.S. government will continue to suppress Chinese companies and capital markets, thereby curbing risk appetite and exacerbating exchange rate fluctuations.
Li Chao, chief economist of Zheshang Securities, predicts that the RMB exchange rate against the US dollar will continue to appreciate, with the fluctuation center in 2021 around 6.5, with a fluctuation range of 6.3-6.7, with a high probability in the first half of the year It can touch a high of 6.3, but in the second half of the year, as the use of vaccines allows overseas economies to gradually restore production capacity, and China’s economic growth gradually declines, the RMB exchange rate may face certain depreciation pressure, especially in the fourth quarter, China’s GDP growth may fall. to a low of 4.8%. At this time, monetary policy may also turn to marginal easing, and the Federal Reserve may gradually start normalizing monetary policy. The interest rate gap between China and the United States is also not conducive to the appreciation of the RMB exchange rate. However, in the medium to long term, the U.S. dollar will experience a downward cycle in the next 8-10 years, and the RMB exchange rate will embark on a deterministic appreciation trend.
Ministry of Commerce
The possibility of returning to 6.5-6.8 is very high
In terms of the exchange rate trend in 2021, Liang Ming, director of the Foreign Trade Institute of the Ministry of Commerce Research Institute, believes that domestic factors in the United States are an important factor: if the Biden administration transitions smoothly after January 20, the U.S. economy will move toward recovery. If there is a normal change in direction, it will be impossible for the RMB to appreciate continuously and on a large scale against the US dollar. “Generally speaking, I think the RMB against the US dollar will still return to equilibrium, for example, to around 6.8, 6.9 or 7. This will be an equilibrium level.”
The Central Bank
It will neither continue to appreciate nor depreciate
Sun Guofeng, Director of the Monetary Policy Department of the Central Bank1 On May 15, he said that the future trend of the RMB exchange rate depends on the economic situation and the international market.Generally speaking, the RMB exchange rate will rise and fall, and two-way floating will become the norm, and it will neither continue to appreciate nor depreciate.
Sun Guofeng believes that the RMB exchange rate remains basically stable at a reasonable and balanced level, which is consistent with my country’s foreign trade and economic fundamentals. Compared with other major currencies, the appreciation of the RMB exchange rate against the US dollar is also relatively moderate. Under the new higher-level open economic system, the RMB exchange rate is at a reasonable and balanced level, and the positive and negative impacts of exchange rate changes on exports and the economy basically offset each other. The future trend of the RMB exchange rate depends on domestic and foreign economic situations, international balance of payments conditions, changes in the international foreign exchange market and other factors.
SAFE
Overall balance, two-way fluctuations
On January 22, Wang Chunying, deputy director and spokesperson of the State Administration of Foreign Exchange, introduced the 2020 foreign exchange receipts and payments data, and also responded to hot issues such as foreign exchange reserves, RMB exchange rate, and foreign bond purchases.
In the first half of 2020, against the background of the continued depreciation of the RMB exchange rate, the settlement rate to measure the willingness to settle foreign exchange, that is, the ratio of the customer’s foreign exchange sales to the bank to the customer’s foreign exchange income is 66%, a year-on-year increase of 2.0 percentage points. After the RMB exchange rate experienced rapid appreciation in the second half of 2020, the settlement rate for the whole year of 2020 dropped to 2 percentage points to 64%.
In December 2020, there was a surplus of US$66.6 billion in foreign exchange settlement and sales, of which US$60.7 billion was US$60.7 billion in foreign exchange settlement and sales under trade in goods, accounting for 91%, which illustrates the comparative willingness of some enterprises to settle foreign exchange. strong.
How will the foreign exchange market change in 2021?
Wang Chunying said that in the future, the foreign exchange market will further consolidate and present the characteristics of overall balance and two-way fluctuations. First of all, China is accelerating the construction of a new development pattern with the domestic cycle as the main body and the domestic and international dual cycles reinforcing each other, which will promote the coordinated development of domestic demand and external demand, import and export, foreign investment and the absorption of foreign investment. Secondly, we must firmly promote high-level two-way opening of the financial market, improve the level of liberalization and facilitation of cross-border trade and investment, and create a good policy environment for the free and balanced flow of cross-border funds in both directions. Third, the infrastructure construction of the foreign exchange market has been continuously improved, and the RMB exchange rate has been maintained with a relatively high flexibility. In the future, it will fully play the role of an “automatic stabilizer” in regulating the macro economy and the balance of payments.
However, Wang Chunying also said that from the perspective of the international environment, the global economy is expected to recover steadily this year, but there are still many factors of instability and uncertainty, including derivative risks caused by the impact of the epidemic. It cannot be ignored that turmoil in the international financial market may still exist, which may increase the volatility of China’s foreign exchange market.
It is worth noting that the Foreign Exchange Bureau’s investigation found that some export companies make settlements in non-U.S. currencies such as RMB or Euro. The appreciation of RMB against the U.S. dollar has a negative impact on such companies. The impact is limited.
In addition, companies’ hedging awareness has increased in 2020, with the hedging ratio being 17.1%, an increase of 2.7 percentage points from 2019. Some companies attach great importance to exchange rate risks and have taken many active and effective measures, such as adding clauses on exchange rate fluctuations and re-pricing in commercial contracts, and using multiple currencies for settlement to diversify the risk of exchange rate fluctuations; All exchange rate risk exposures have very clear management strategies.
What about you? When or at what price are you planning to settle foreign exchange this year? </p
