On May 9, Sheng Songcheng, Counselor of Shanghai Municipal People ’s Government and Professor of China Europe International Business School, published an online forum entitled “Global Economics and Policy Options” with the theme “The International Monetary System May Be More Dollarized After the Epidemic” Speech.
Sheng Songcheng said that the international monetary system may be more dollarized. He pointed out that the Fed has recently implemented a series of policy measures to prevent the US economy from falling into a long-term recession and maintain financial stability. At the same time, the Fed has, in fact, naturally assumed the role of the global central bank to a certain extent, under certain conditions, and within certain limits, because it provides dollar liquidity to the world.
For how China responds, Sheng Songcheng said, For a long time, the US dollar is still the main international currency, and the RMB needs to move closer to the US dollar, and Not decoupled from the US dollar. First of all, China should continue to promote the reform of the RMB exchange rate formation mechanism; on the premise that the market determines the RMB exchange rate, maintain the basic stability of the RMB exchange rate and prevent excessive interference by market speculation. Second, we must continue to promote the orderly opening of the capital account. The internationalization of the RMB and the opening of the capital account are interrelated. While promoting the opening of the capital account, we should also take into account the prevention of risks. Third, we must make full use of the “Belt and Road” opportunities to promote the cross-border use of RMB.
The following is the full text of Sheng Songcheng’s speech
The following is the full text of Sheng Songcheng’s speech
Hello everyone, my topic is “The International Monetary System May Be More Dollarized After the Epidemic”. I mainly talk about four aspects: First, the Fed ’s aggressive expansion of the balance sheet has not triggered a depreciation of the US dollar. Second, the Fed provided global liquidity during the impact of the epidemic. Third, the international monetary system may become more dollarized. Fourth, how should China respond.
Let me first talk about the first aspect, The Fed ’s aggressive expansion of the table has not caused a depreciation of the dollar . The New Coronary Pneumonia epidemic has spread globally, and the United States has become the hardest hit area; in order to maintain the stability of the US economy, the Fed has implemented a radical expansion of the table, from 4.2 trillion U.S. dollars in early March to nearly 6.6 trillion U.S. dollars. %. At the beginning of March, the Fed’s balance sheet was only 4.2 trillion US dollars, but now it has reached 6.6 trillion US dollars. But on the other hand, domestic inflation in the United States is not very high, and foreign dollars have not depreciated much. In terms of prices, in March this year, the US CPI was 1.5%, a sharp drop of 0.8 percentage points from February, and the US core CPI was 2.1%, down from February0.3 percentage points.
From the exchange rate point of view, since mid-March, the US dollar index has continued to strengthen until the end of March. So why is there such a phenomenon? This is mainly related to the scarcity of global dollar liquidity under the impact of the epidemic . Due to the urgent need for the US dollar, the international financial markets once panicked to sell assets such as U.S. debts and gold. In the first half of March, the price of gold fell sharply, while the yield of U.S. debts rose sharply and fluctuated widely. If this phenomenon persists, it will cause the price of US bonds to fall, driving up market interest rates and weakening the effect of the Fed ’s loose monetary policy.
In the second aspect, the Fed provides global liquidity during the impact of the epidemic . When global liquidity is in short supply, the Fed’s liquidity swaps with other central banks often increase significantly. Since mid-to-late March, currency exchange arrangements between the Fed and central banks have become an important part of the Fed ’s liquidity arrangements. On March 16, the size of the currency swap between the Fed and the foreign central bank ’s monetary authority was only US $ 45 billion, and a week later, on March 23, this scale rose sharply to US $ 206.1 billion. As of April 20, the Fed The scale of liquidity swaps with foreign central banks has reached 409.1 billion US dollars, accounting for 78.2% of the Fed ’s total liquidity payment instruments over the same period. At present, the liquidity swap between the Fed and foreign central banks has reached 409.7 billion US dollars.
In the second aspect, the Fed provides global liquidity during the impact of the epidemic . When global liquidity is in short supply, the Fed’s liquidity swaps with other central banks often increase significantly. Since mid-to-late March, currency exchange arrangements between the Fed and central banks have become an important part of the Fed ’s liquidity arrangements. On March 16, the size of the currency swap between the Fed and the foreign central bank ’s monetary authority was only US $ 45 billion, and a week later, on March 23, this scale rose sharply to US $ 206.1 billion. As of April 20, the Fed The scale of liquidity swaps with foreign central banks has reached 409.1 billion US dollars, accounting for 78.2% of the Fed ’s total liquidity payment instruments over the same period. At present, the liquidity swap between the Fed and foreign central banks has reached 409.7 billion US dollars.
At the same time, the Fed has also established a new policy tool called FIMA, which can also be called the FIMA repurchase facility. This was announced by the Fed on March 31, That is to provide repurchase facilities for foreign central banks and international monetary authorities. This tool has four main contents.
First of all, central banks and international monetary authorities can use U.S. Treasury bonds as collateral to borrow dollars from the Fed, which means that central banks can not sell U.S. Treasuries It is necessary to sell US Treasury bonds in the financial market, and the problem of USD liquidity gap can be solved through the FIMA repurchase facility.
Second, the Fed ’s FIMA repurchase is entirely based on the voluntary actions of foreign central banks and international monetary authorities, which means that foreign central banks and international monetary authorities can use US debt Borrowing money from the Fed as collateral can also be done voluntarily, so there is no such thing as the so-called Fed to freeze U.S. Treasury bonds held by foreign central banks.
Third, the foreign central bank can redeem US debt in one day. That is to say, the shortest period of time for the Fed to borrow money with this toolkit is one day, 24 hours, borrowed today and repaid tomorrow; Of course, it can also be extended voluntarily as needed. Now the arrangement made by the Fed can be extended up to six months, then after six months, will this tool still exist, and then it will be based on the actual situation in the United States and global liquidity Adjustment, this is another matter.
Fourth, financing interest rate. How is the interest rate for borrowing money determined? This borrowing interest rate is the interest rate for excess reserves in US dollars Add 25 BPs. As we all know, the excess reserve interest rate of the US dollar is 0.1%, which is very low. With 25 BPs, why is it so arranged? It is to prevent arbitrage from central banks, because if its interest rate is very low, If it is lower than the excess deposit reserve interest rate, then central banks of various countries can borrow money from the Fed, and after borrowing the money, they will put it in your Fed in the form of excess reserve. Is n’t this an arbitrage? Then it ’s here If you add 25 BP to the excess reserve interest rate, you will not be able to arbitrage. At the same time, only when the interest rate of the US dollar capital market exceeds the normal level, foreign central banks will use the FIMA repurchase facility to obtain US dollars. In the last month, the balance of the FIMA repurchase facility in the Fed ’s balance sheet has only increased by $ 1 million, which is a relatively small part of the Fed ’s balance sheet, indicating the current global liquidity of the US dollar Not very nervous. Except that the Hong Kong Monetary Authority announced that it will use the FIMA repurchase facility in an appropriate way from May 6, other central banks rarely use this tool.
The third aspect, the international monetary system may be more dollarized . The Fed recently implemented a series of policy measures to prevent the U.S. economy from falling into a long-term recession and maintain financial stability. This is the summary of the United States from the Great Depression, that is, the capitalist economic crisis of 1929 to 1933 and the international financial crisis of 2008. experiences and lessons. At the same time, The Fed has in fact naturally assumed the role of the global central bank within a certain degree, certain conditions, and certain limits, because it provides dollar liquidity to the world. So in a sense, the creation of FIMA repurchase convenience tools is an innovation of the international monetary system. At the same time, FIMA has further improved the creditworthiness of US Treasuries, because now US Treasuries are endorsed by the Federal Reserve in addition to the US Treasury. This tool of FIMA also helps maintain the confidence of the international market in the US dollar, which in a sense eases the “Triffin Dilemma” of the new period, which means that on the one hand, the United States needs to provide global flowOn the other hand, it is necessary to maintain the stability of the exchange rate of the US dollar. Then FIMA tool is helpful to solve this problem.
The third aspect, the international monetary system may be more dollarized . The Fed recently implemented a series of policy measures to prevent the U.S. economy from falling into a long-term recession and maintain financial stability. This is the summary of the United States from the Great Depression, that is, the capitalist economic crisis of 1929 to 1933 and the international financial crisis of 2008. experiences and lessons. At the same time, The Fed has in fact naturally assumed the role of the global central bank within a certain degree, certain conditions, and certain limits, because it provides dollar liquidity to the world. So in a sense, the creation of FIMA repurchase convenience tools is an innovation of the international monetary system. At the same time, FIMA has further improved the creditworthiness of US Treasuries, because now US Treasuries are endorsed by the Federal Reserve in addition to the US Treasury. This tool of FIMA also helps maintain the confidence of the international market in the US dollar, which in a sense eases the “Triffin Dilemma” of the new period, which means that on the one hand, the United States needs to provide global flowOn the other hand, it is necessary to maintain the stability of the exchange rate of the US dollar. Then FIMA tool is helpful to solve this problem.
The last part, how should China respond? For a long period of time, the US dollar is still the main international currency. What the renminbi needs to do is to move closer to the US dollar, not to decouple it from the US dollar. First of all, we should continue to promote the reform of the RMB exchange rate formation mechanism; on the premise that the market determines the RMB exchange rate, maintain the basic stability of the RMB exchange rate and prevent excessive interference by market speculation. Second, we must continue to promote the orderly opening of the capital account. The internationalization of the RMB and the opening of the capital account are interrelated. While promoting the opening of the capital account, we should also take into account the prevention of risks. Third, we must make full use of the “Belt and Road” opportunities to promote the cross-border use of RMB.