Yi Gang VS Bernanke: Guiding The Development Trend Of RMB Exchange Rate

IMF and the world bank during the spring annual meeting, in the Brookings Institution in Washington, vice president of the people's Bank of China Yi Gang and former Federal Reserve Chairman Bernanke (Ben Bernanke) held a dialogue meeting you came to me.

Yi Gang is the protagonist, sitting between the host and Bernanke.

Yi Gang Xiao Bernanke, 5, a deputy governor of the central bank and a former chairman of the central bank, are all educated in the United States, and the two men are fully conversant in their dialogues.

In particular, on the topic of RMB exchange rate, Yi Gang clarified the rumor that the RMB exchange rate followed the US dollar index, and again conveyed the clear signal that "the central bank hopes to see a stable RMB exchange rate".

No reform and overreaction are risks.

Yi Gang has passed the forecast of China's steady economic growth to the outside world.

He pointed out that China's economy is still quite strong from the considerations of electricity consumption, CPI and PPI data.

Yi Gang expresses confidence that China's economy will grow by 6.5%-7.0% this year.

After about 10 hours' judgement, China's National Bureau of Statistics announced the latest economic data in the first quarter of April 15th. In the first quarter of this year, GDP grew by 6.7% year-on-year, showing a good start.

In April 12th, the International Monetary Fund (IMF) released the world economic outlook report, which has just increased China's economic growth forecast in the next two years by 0.2 percentage points to 6.5% and 6.2%.

IMF also lowered global economic growth to 3.3%.

Yi Gang said that even if China's economic growth slowed down, China remained at an average growth rate over the past ten to twenty years, so risk and overreaction should not be overstated.

"If you really want to do something, the most difficult thing is reform."

Yi Gang pointed out that "no reform is a risk and overreaction is another."

Bernanke is cautious about the economic outlook.

He pointed out that although the world economy is indeed better than the previous years, the overall economic growth is still "disappointing" at present. There are many reasons for this.

For developed countries, inflation is slow to improve, and emerging markets such as China are struggling to cope with lower economic growth, lower commodity prices and stronger US dollars.

Bernanke said he had no "panacea", but the state could pay more attention to the role of aggregate demand and pay more attention to the role of fiscal policy, such as Japan.

It is also said that there is misunderstanding in the outside world about structural reform. People always say that only developing countries like China need structural reform, but in fact, structural reforms are needed in countries with insufficient demand.

Active fiscal policy to promote structural reform

Bernanke pointed out in particular that potential contradictions may exist between avoiding currency devaluation and quantitative easing.

"My suggestion is that more focus on fiscal policy - fiscal policy does not have so much negative impact on monetary policy - to drive domestic demand, as well as to achieve the goal of reform."

Bernanke said that in order to achieve economic growth guided by consumption, we need to rely on fiscal policy to enhance social security, increase disposable income and promote the pfer of labor force from manufacturing to service industry.

Zhou Xiaochuan, governor of the people's Bank of China, also said in February this year that since the global financial crisis, many countries have been relying heavily on monetary policy because of the relatively small fiscal policy space and high debt ratio in the past.

Yi said that China's fiscal deficit will increase to 3% of GDP this year, equivalent to more than 2 trillion yuan, only 2.3% last year.

Therefore, in China, a positive fiscal policy is very important.

Yi Gang pointed out that China's structural reform is now happening. Consumption has contributed 66%, which is 2/3 of economic growth. Manufacturing industry has been the largest, and the service sector has accounted for 15% of GDP last year; consumption is relatively stable.

"China is already on the road of pformation."

Yi Gang said, "the difficulty is that China's savings rate may be the highest in the world, and this problem needs to be solved."

Yi Gang once again stressed to the outside world that the market is the primary determinant of the RMB exchange rate.

What China implements is a regulated floating exchange rate system based on market supply and demand and reference to a basket of currencies.

Yi Gang said that the sharp decline in market volatility now indicates that China's pmission of information to the market "reference to a basket of currencies" is more successful.

He said that the central bank hopes to see a stable RMB exchange rate, and the authorities will strike a balance between implementing policies and allowing the market to decide the exchange rate.

"We do not want to see serious overestimation."

Yi Gang said.

Yi Gang also said that the US dollar still occupies a "very large weight" in the basket of currencies, but it also stresses that the RMB exchange rate is "reference" to a basket of currencies, rather than pegging it.

Therefore, it should not be expected that the RMB exchange rate will follow the index.

On the "reference basket" issue, the audience later asked, since the renminbi is priced according to a basket of currencies, why does the renminbi not peg to the CFETS basket of currencies in the near future?

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"This is a good question."

Yi Gang laughed.

He explained that a basket of currencies mainly has three currency basket, the three currencies basket of China Foreign Exchange Trading Center (CFETS), the international clearing bank (BIS) and the special drawing rights (SDR).

"We say we are pricing in reference to a basket of currencies rather than a basket of currencies."

Yi Gang stressed that from the indicators of FDI and China's foreign direct investment (ODI), the RMB exchange rate is currently in equilibrium.

He has confidence in the stability of the RMB exchange rate.

He said that under the uncertainty of the world economy and the increasing number of unstable factors, Chinese officials will avoid excessive fluctuations in the RMB exchange rate.

The excessive fluctuation or overshoot of the RMB exchange rate is not good for China and the rest of the world.

In response to the host's question, Bernanke said that the Chinese government has made it clear that the sharp fall of the renminbi is not an option, nor will it happen.

China may be faced with the so-called "three paradox", that is, to achieve an independent monetary policy at the same time, free floating capital and fixed exchange rate are unlikely.

"But I think they will achieve their goals, especially capital flows."

Bernanke said that reducing or restricting capital flows is difficult to implement and can turn to increase investment intentions of domestic and foreign investors.

The recent opening of interbank bond markets to foreign investors is such a measure.

Bernanke also said that in terms of capital outflow, he did not see the 1990s Asian financial crisis.