On April 16, at the 2022 Tsinghua Wudaokou global financial forum, Boc International (China) Co.Ltd(601696) global chief economist Guan Tao said that we should prevent and resolve the risk of external shocks in 2022. The tightening of the Federal Reserve is a major external risk, and geopolitical risks also have a huge impact. China should strengthen the macro Prudential Management and judgment of the external market, strengthen the risk prevention and control in the foreign exchange field, and stabilize market expectations.
Guan Tao pointed out that in 2021, the RMB can get out of the strong US dollar and stronger RMB market. The oversupply of foreign exchange is an important reason, which lies in the surplus of foreign exchange settlement and sales contributed by the trade surplus. The important external factor affecting the RMB exchange rate this year is the tightening of the Fed's policy, which has four scenarios for the impact on the RMB exchange rate and cross-border capital flows.
The first scenario is the moderate and orderly tightening of the Federal Reserve, the slowdown of China's foreign capital inflow and the slowdown of RMB appreciation.
The second scenario is that now the market generally expects the Federal Reserve to have more radical interest rate hikes, which will inevitably lead to the turbulence of the U.S. economic and financial markets. The turbulence of the economy and finance may lead to the decline of market risk appetite and drive China's periodic capital outflow. In this case, the RMB exchange rate may rise and fall and fluctuate in both directions.
The third scenario is that if the Fed's monetary tightening is beyond expectations, it may foam the asset bubble and trigger a recession. It may be difficult for China to be alone. It is not ruled out that in this case, the RMB exchange rate may be under pressure again.
The fourth scenario is the Fed's monetary policy back to easing. If China can continue to maintain its leading position in the global economic recovery and become a safe haven for international capital, the RMB exchange rate will be stronger.
Guan Tao believes that China has relatively smoothly passed the first stage of Fed tightening, but it still needs to pay high attention and vigilance to the follow-up. In 2022, the policy should focus on seven contents.
First, we will continue to steadily deepen the market-oriented reform of the exchange rate. Including improving the exchange rate system, strengthening the expectation management, guiding enterprises to further improve the exchange rate risk management, and better adapt to the increase of exchange rate flexibility.
Second, continue to steadily and prudently promote the internationalization of RMB. This is the overall requirement of the 14th five year plan, including deepening foreign monetary cooperation, developing the filed RMB market, carrying out high-level pilot opening-up of cross-border trade, and supporting the construction of Hong Kong's offshore center.
Third, prevent and resolve the risk of external shocks. The tightening of the Federal Reserve is a major external risk, and geopolitical risks also have a huge impact. China should strengthen the macro Prudential Management and judgment of the external market, strengthen the risk prevention and control in the foreign exchange field, and stabilize market expectations.
Fourth, deepen reform and opening up in the field of foreign exchange. Including the opening of capital account, the construction of foreign exchange market, the reform of foreign exchange management itself, deepening the facilitation reform of traditional trade forms, promoting the standardized and innovative development of new forms of foreign trade, and optimizing foreign exchange services, especially for small and medium-sized enterprises.
Fifth, improve the micro supervision of the foreign exchange market. Improve the authenticity audit methods of bank foreign exchange business, and improve the micro supervision practices of foreign exchange market. Fully reflect the neutrality of foreign exchange regulatory policies, and adhere to the consistency, stability and predictability of external market micro regulatory law enforcement standards across cycles.
Sixth, improve the operation and management of foreign exchange reserves. We will ensure the safety, liquidity, value preservation and appreciation of foreign exchange reserve assets, promote the construction of professional investment capacity, scientific and technological operation and management capacity, and market-oriented institutional governance capacity.
Seventh, consolidate the basic work of foreign exchange management. This year's legislative work should be further promoted, especially the revision of the regulations on the administration of foreign exchange, further improve the balance of payments statistics, increase the research on key foreign exchange topics, and deepen the construction of "digital external control" and "safe external control".
