Since May of this year, the exchange rate of the US dollar against the RMB has continued to fall, from the highest level of 7.2 to 6.5 all the way. The Hong Kong dollar is pegged to the US dollar with the same floating exchange rate system. Other major currencies such as the euro, pound sterling, and yen have continued to depreciate against the renminbi since August, indicating that the passive devaluation of the renminbi exchange rate from the beginning has been transformed into an active appreciation. What is the reason? Will it continue to fall?
1. The Fed's unlimited quantitative easing monetary policy
In March 2020, the Federal Reserve announced an unlimited quantitative easing policy to defuse the impact of the epidemic on the economy. In order to rescue the market, the Fed lowered interest rates to zero on the one hand, and on the other hand ran the money printing press frantically, and a large amount of dollars flowed to the market. With the massive increase in supply, the U.S. dollar has actually depreciated a lot. Not only is the renminbi rising against the U.S. dollar, but other major currencies are also under pressure to appreciate against the U.S. dollar.
In the spring of 2020, the United States has implemented a $2.2 trillion large-scale revitalization program, which includes unemployment assistance. But this plan will expire on December 26, when millions of Americans will lose their income. As the U.S. epidemic continues to worsen, people’s expectations for U.S. monetary policy next year are still continuing to be loose.
2. The epidemic affects imports and exports
Since the outbreak of the epidemic was the first in China, but the government controlled it properly and was the first to control the epidemic, the economy was not affected too much. On the other hand, due to the lack of effective response in other countries, the epidemic has repeatedly erupted, which has seriously dragged down the economic development. China is a big manufacturing country in the first place. With its economy taking the lead in recovery, its exports have increased substantially. On the one hand, the export of medical anti-epidemic materials such as textile yarns and plastic products has increased sharply, and on the other hand, because the epidemic has reduced the number of residents going out, the export of household products such as furniture, toys, and lamps rebounded significantly. In addition, the resumption of work and production in various countries has been dragged down, which has further increased the dependence on Chinese goods.
3. Joe Biden was elected president of the United States
After being elected, Biden may adopt a relatively mild policy. He advocates free testing and treatment of the new coronavirus, and eventually provides free vaccines to all Americans; proposed to create a public insurance option to move towards universal health insurance; and requires the federal government within 4 years Invest 400 billion U.S. dollars to purchase American products and services, and 300 billion U.S. dollars to research and develop new technologies and clean energy. Similar policies require large-scale fiscal expenditures to support. In addition, after he takes office, Sino-US trade frictions are likely to ease to a certain extent, strengthening economic cooperation between the two sides.
4. Signing of RECP
In November 2020, the world’s largest and most potential regional free trade agreement, RCEP, was officially signed, which is also a major factor in promoting the continued appreciation of the RMB in the future. Generally speaking, currency appreciation will weaken exports and strengthen imports. However, due to China's complete industrial system, strong production capacity, and low labor costs, China can continue to export more overseas when the RMB appreciates. commodity. Within the RECP, the position of ASEAN countries is followed by Japan and South Korea. Either the industrial foundation is weak or the resources are scarce, and both have a strong dependence on China's exports.
5. Policies of the People's Bank of China
The central bank’s monetary policy has a direct impact on the RMB exchange rate. In October this year, the central bank announced that it would lower the foreign exchange risk reserve ratio for forward foreign exchange sales from 20% to 0. The next step will continue to maintain the flexibility of the RMB exchange rate, stabilize market expectations, and enable the exchange rate. Maintain stability at a reasonable and balanced level. In addition, the central bank's public operations also affect the RMB exchange rate. As financial products such as RMB treasury bonds and financial bonds issued on the offshore market continue to increase, and benefit from the appreciation of the RMB, overseas demand for RMB assets may further increase.
In general, although the above reasons may cause the demand for RMB to increase substantially, the central bank's monetary policy will play a decisive role. If the central bank maintains its existing policies in the future, there is a high probability that the RMB will continue to appreciate in the long run. After the USD/RMB exchange rate drops below the 6.5 platform, it is likely to reach the previous low of around 6.3 or even lower.
Due to the recent large fluctuations in the exchange rate, under the pressure of the continuous appreciation of the renminbi, the price of the mining grinding equipment
is also rising. And in the foreseeable future, the price will rise further. It is recommended that customers in need place an order as soon as possible to reduce the loss caused by the exchange rate.
The disaster-prone 2020 is about to pass. Shanghai Clirik Machinery Co., Ltd. hopes to overcome the difficulties with you and build a community with a shared future for mankind.