主题：闲看人民币外汇政策改革 -- MRandson

The goal of China’s exchange rate policy

Chinese exchange rate policy must submit Chinese economy policy goal, to understand Chinese economy policy goal must understand Chinese economy.

There are two major processes of China’s economic reform: urbanization and capitalization. There are eight problems of Chinese macro-economics: the social instability caused by the process of capital accumulation, the instability future of the workers, the shortage of economy regulations, low technology of production, the shortage of crude material, the problem of finance, the destitute government and the unfriendly international political environment.

Make society stable is the most important thing for China, if there is a revolution or an impetuous alteration in China’s economy or political, every thing will not guaranteed. The major goal for China’s economy policy is under the stable situation, try to develop quickly.

For China’s exchange rate policy, to reduce the possibility of financial crisis caused by international capital liquidity is the most important. If a financial crisis breakout, there must be a commotion. Consider of what happened in Ukraine and other former USSR country, a revolution manipulate by foreign country is inevitable.

To reduce the unemployment are the important thing for China’s economy policy. Caused by the instability of the expectation reform, domestic demand is insufficiency, so keep export trade and the FDI (foreign directional investment) stabile for reducing unemployment are vital.

China’s exchange rate policy should make equilibrium between these two goals.

US deficit has become a large problem for international financial system, dollar are more and more unstable. Most China’s foreign reserve are US dollar, there is high risk. To reduce these risks is also should be thought for China’s exchange rate policy.

To prepare for the leader of the East Asian area is also need be thought. To create an environment for reforming China’s finical system is also need be considered for China’s exchange rate policy. Since the reform, there is lager number bad debt accumulated in China’s four major state own commercial banks. High saving rate caused by insufficient financial invest way add unexpected future, save these bank.

The lessons of the Southeast Asian financial crisis

Southeast Asian financial crisis destroy the economy of Southeast Asian country. Some scholars said the only reason China survive the crisis is that China did not open capital market for foreign investors.

After these studies, we can draw a conclusion that, under the free capital market, cause by the volatile international capital, the absent of special product and service, and low credibility, the demand of a developing country currency is unstable. It is difficult to keep a stable value for these currencies.

To make the currency value stable, these countries often peg their currency with US dollar. Peg with US dollar make their export trade stable but their currency vulnerable. It is drink poisoned wine to alleviate thirst. Every time US increase saving rate, the export of these countries will decrease, but the value of their currency will increase. It is time for speculators.

The lessons of the appreciations of Japanese yen and Germany mark

After the WWII, cause by the revival of economy, Japanese yen and Germany mark appreciated step by step in five decades. The appreciated Japanese yen cause bubble in real-estate and stock. Compare with yen Germany mark are more successful.

When a developing country becomes a developed country, caused by the increase of export productivity, the currency of the country will appreciate. Most low technical and labour concentrate productive industry will emigrate to other developing country. Company with this course, job opportunity for unskilled worker will decrease. To keep low unemployment rate, un-independent central bank have to keep loose monetary policy

Because there is expectation of appreciation, foreign capital will flow into these new flourish countries. Foreign capital combines with loose monetary policy, there will be bubble in real-estate and stock market. Sooner or later, the bubble will collapse, the economy will recession.

Should China open capital market now?

There is a large number capital flowing in the international capital market. To keep the value and increase steadily are important goal for the funding managers. These managers separate their investment to reduce risk. They do not have enough time and information to study their every investment. In many cases, they just flow the market tide. Some manager many be wise can realize the real value of their investment, but they also have to flow the tide of the market. If they do not flow the majority, they will be the loser, like in the bank bankruptcy. So in most cases, these capitals are volatile, and flow blindly.

To attract this capital, country should have well economy expectation and low political risk. When this capital came to one country, the cost of labour will increase, domestic service will flourish, and manufacturing will be stricken.

If there is no special product and service (high technical or some special local things) in this country, the demand of this currency for product and service of this country will decrease, but the demand for capital invest may still strong caused by insufficient information. It is an inducement for a financial crisis.

Cause by the expectation and insufficient information, the financial crisis is easy to infective. During the Southeast Asian financial crisis, even Singapore which has healthy financial system can not survive.

For China as a developing country open capital market, no matter whether has healthy finical system, is vulnerable for finical crisis. Today there is strong expectation for the appreciation of yuan, if China open capital market the result will be bubble at beginning (as Japan), then a financial crisis as the end (as Thailand).

The lessons of the euro

Monetary union provide a way for small economy entity to against inflation and financial crisis. Some scholars also suggest China should choice monetary union as an option.

Monetary union has strong ability to anti-inflation. But if the inflation is caused by crude material, it may cause long time recession, since the central bank of monetary union always are independent. The economy will suffer by inflation combine with recession.

Except UK, there is no abundant oil resource in Europe. Most part of oil that euro area consumed must be import for foreign countries. If Ukraine and other some former USSR country, which have abundant oil resource, join the euro area the situation may alleviate. But it needs time, and Russia does not like be compressed.

Today the oil price is high sensitive with the situation of Middle East. Caused by US invade Iraq, threaten Iran and the insurgent military force in Iraq, the oil price has been soar for more than two years. The euro area is suffering by high unemployment and inflation. And there is no evidence that the situation will calm down in short time. So it is no strange that Europe constitution was rejected in France.

More dangerous is that caused by the recession the fiscal deficit will increase, the accumulated fiscal deficit will damage the expectation of the euro credibility. If quite a number of investors lost their trust of euro, euro will demise. And all number of euro area will pay price for it.

If there is a strong political union in euro area situation may changed. This political union can strongly against US invade Iraq, intervene the situation of Middle East. However, since the UK is one of the triple major leaders of Europe Union and is not belonging to the euro area, so there can not form a strong political will to intervene the US military action in Middle East.

Furthermore, because that the euro born earlier than a strong political union, the integrative course will be more difficult. Actually, if study the history of Italy, Germany, and US, we can find the strong political union should set up before monetary union. Since every step to integrate, there are some number should sacrificed. If there is no a strong political union, every number hope other numbers will scarify, but not themselves.

Consider of that China can not bear high unemployment, the crude resource distribution, and the political background of Pacific-Asian countries, monetary union is not suitable for China.

For China the “capital control plus peg with US dollar” is the last bad exchange rate policy

China chose it not because it is best, but because it is the most safety and last bad.

The predicament of today

To China, toady’s exchange rate policy cause many problem.

High reserve of US dollar means a large number of seigniorage will lose.

High reserve means low return form the US TB. On one hand is China invest in US capital market, on the other hand China should pay high return for FDI.

High reserve also means insufficient consumption and investment. All resource will concentrate in export industry, domestic industry and service can not get enough resource to develop.

Cause by the over issue of US dollar, have too many US dollar reserve is dangerous. US dollar depreciate, China will lose a lot; US dollar collapse, China get nothing.

The sterilization also will cost a lot.

How to deal with today’s situation?

To encourage Chinese cooperate invest in foreign countries, especially in oil and crude resource exploit project, to reduce the pressure of high foreign reserve.

To impose export tax to some labour concentrate export industry.

To keep Chinese exchange rate policy stable, do not change too frequently or change caused by foreign political pressure, can make Chinese yuan more trustiness. It is important for yuan, if China want yuan to be the leader of the Asian currencies.

To make more economy and political cooperate with Middle East and Middle Asian countries can alleviate the shortage of crude oil.

To reform Chinese financial environment is also urgent.

英文不好，大家别见笑。