During China`s “two sessions” in 2018, Chongyang Institute for Financial Studies at Renmin University of China (RDCY) launches a series of seminars to interpret hot topics. On the evening of March 12, the second lecture was given by Professor Di Dongsheng, associate dean of the School of International Studies at Renmin University of China, analyzing the common mistakes of those who underestimate the RMB.
Professor Di explained the reasons for the appreciation of the RMB through analyzing the the logic mistakes of underestimating the RMB in five aspects, and gave a forecast that the RMB exchange rate against US Dollar will rise to 5.5 in 2021.
Professor Di outlined the five major arguments for people who underestimate the RMB. First, China’s economic slowdown will lead to a depreciation of the exchange rate. Second, the prices of house and commodities are very high and asset bubbles are likely to burst at any time, which will led to the depreciation of the RMB. Third, foreign companies’ arbitrage weakens China’s manufacturing industry, and China’s large-scale unemployment will occur. Fourth, the Chinese banks have more bad loans and China’s (local) government debt is huge, so there will be a plunge in the exchange rate; Fifth, Chinese banknotes are printed too much, which will lead to the devaluation of the RMB.
However, Professor Di noted that above five factors are not directly related to the deprciation of the RMB exchange rate and explained it in specific examples.
Professor Di forecasts that the U.S. Dollar index may be at 65 points in 2021 and the Chinese Yuan against the U.S. Dollar may be at 5.5:1. Then he analyzed the factors that will boost the RMB exchange rate in the future:
First, RMB internationalization. He said that the People`s Bank of China is studying how to use the currency digitization to realize the overtaking.
Second, the downtrend of the U.S. Dollar index. This can be a structural driving force.
Third, China`s industrial upgrading. China is expelling low end industries gradually and boosting high value-added industries. Against this backdrop,if we still maintain a Dollar trade surplus, the RMB will continue to appreciate moderately.