Agency: Bank of China RMB is overvalued currency devaluation should now boot ?

Published:2014-02-01 05:19:36 Source: Views:1590

Agency: Bank of China RMB is overvalued currency devaluation should now boot

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Macroeconomic research consultancy Lombard Street Charles Dumas , chief economist believes that 2011 yuan for the first time signs appear overvalued because of the exchange rate after the reform and further demonstrates the Sino-US trade weights , while inflation rose excessive wage -related . China's central bank to take action now , to let the yuan depreciate , otherwise possible future outbreak of a major debt crisis.

Dumas said the two figures :

· Since 2011, China 's relative unit labor costs (RULC) has increased by 20 %.

· Since 2005, Chinese exchange rate reform , the dollar fell below 8.28 yuan from 6.3 yuan rose as high as 77%.

So the sharp appreciation of the RMB , Dumas think part reflects the trade-weighted , it also showed inflation rising wage costs too much .

Dumas noted that the yuan is overvalued has made profits decline , there has been decline in the PPI when wage costs rising inflation phenomenon.

When the government allows producers when prices fall , real interest rates would fall firmly 7.5-8 % , high interest investment money into the banking system increased accordingly .

Dumas expect any market reform initiatives and opportunities for investment in interest rates will lead to collapse , the government should not regulate the lending activities to promote increased lending and debt has risen .

Government regulation of all market liberalization could lead to devaluation of action to reduce bank deposits :

Liberalization of interest rates , and foreign banks control the flow of the future , China will be an outflow of funds , then the urgent need to alleviate the pressure of RMB devaluation .

The capital outflow will be depleted bank deposits, pledged multiple non-performing loans will be forced to restructure .

However, the situation is worsening problem occurred earlier would be better :

This is a " crisis happening now ," the situation , although it is still painful controllable .

No financial reform , the RMB may remain high, the debt ratio is likely to continue to rise until it is irreversible .

The best outcome is that economic growth failure, stagnation , like Japan too much debt as the 90s of last century, very much outside the reserve .

The worst outcome is a major outbreak of the debt crisis, the Chinese are beginning to face debt situation openly questioned .

In short , Dumas believes that the yuan continues to overestimate the debt will force China to increase . The Chinese government should allow the yuan to depreciate in now under the control of , do not run the risk of future occurrence of a greater crisis.

Late last year, the People's Bank of China survey Secretary Shengsong Cheng wrote that the RMB " outer depreciate " is a periodic phenomenon .

He believes that now is the appreciation of the RMB in the correction of external devaluation of foreign exchange reform before 2005 to control the implementation of international balance of payments surplus , sustained capital outflows exceeded inflows and scale also promote the yuan continues to appreciate .

Shengsong Cheng pointed out that economic growth is usually a good push up inflation to moderate inflation is the price of economic growth.

Moreover, the appreciation of the RMB moderately beneficial economic structural adjustment and development mode transformation , the gap between the nominal exchange rate and the equilibrium exchange rate of RMB is currently significantly reduced.