Sheng Songcheng: The rapid appreciation of the RMB is not sustainable and does not meet the domestic and international situation

The exchange rate of the yuan against the dollar recently rose above 6.4 off, the People’s Bank of China, the former director of the Department of Investigation and Statistics Sheng Songcheng responded to an interview with the domestic media, the RMB exchange rate has risen and fallen, two-way floating has become the norm, but that the rapid appreciation momentum is not sustainable.

For the outlook of the yuan, he believes that the current rapid appreciation of the yuan may have overshoot, the future is not sustainable, but also does not meet the domestic and international economic and financial situation.

He pointed out that the U.S. economy is expected to rebound comprehensively in the second half of the year, and the dollar may strengthen accordingly. Second, RMB exchange rate appreciation cannot offset the rise in commodity prices and cannot be a tool. According to him, the RMB exchange rate overshoot is short-term speculative behavior and is not sustainable. China insists on opening up to the outside world and encourages long-term capital investment, but it should prevent a large inflow of short-term capital from pushing up the RMB exchange rate, weakening the competitiveness of exporters and disrupting the independent implementation of China’s financial markets and monetary policy.

He also mentioned that RMB appreciation will reduce exporters’ profits, especially for SMEs. In fact, enterprises generally want the exchange rate to be basically stable in order to avoid the disruption of exchange rate fluctuations and the inability to focus on production and operation.

In addition, the Financial Times, a subsidiary of the People’s Bank of China, issued a commentary on the same day, saying that the four major factors that may drive the devaluation of the RMB in the future cannot be ignored.

The commentary pointed out that the four major factors are: First, the U.S. Federal Reserve’s withdrawal from quantitative easing monetary policy. Second, the strong recovery of the U.S. economy has led to the strengthening of the U.S. dollar. Third, the global epidemic is gradually under control and supply capacity is restored. Fourth, the U.S. asset bubble may burst, global risk aversion heated up.

The article points out that if future inflation continues to exceed expectations, the Federal Reserve is likely to tighten monetary policy and capital will flow back to the U.S. from emerging markets significantly, and emerging market currencies, including China, will face significant depreciation pressure and need to be vigilant. The future of the U.S. Federal Reserve to withdraw from loose monetary policy, may burst the asset bubble, triggering a sharp adjustment in U.S. asset prices, stimulating the global market risk aversion, funds back to the U.S. bailout, pushing up the dollar index, pulling down non-U.S. currencies.