Macro-Finance Salon (No. 43): Strong Dollar Is A Double-Edged Sword
2016-12-15 IMI
In his speech, Mr. Xie shared his views on the domestic and international impact of a strong dollar, and on its cause and prospect. This salon included an internal seminar and a live broadcast. After the speech, Mr. Xie exchanged his ideas with other guest speakers and answered questions online. The discussion created a warm atmosphere.
With regard to the global impact of a strong dollar, Mr. Xie mentioned that US dollar is the primary currency in the world, its spillover effect is the major source of the current RMB depreciation expectation. He noted that a strong dollar may have some negative effects on other countries, especially emerging countries like China. A strong dollar will lead to capital outflow in emerging markets, and will also encourage the household sector to increase the holding of foreign assets.
In terms of a strong dollar's impact on the US, Mr. Xie thought that it was a double-edged sword. A strong dollar imposes constraints on US economy and currency and the further development of US dollar. He said that RMB’s share in US Dollar Index increased from 6.8% in 2000 to 21.9% in 2015. Such increase is vital. In the world, there are potential currency areas for China in its neighboring countries and areas, which are closely related with China in economic development. China will also push the mutual impact between emerging markets and developed economies to some extent.
As to the cause and prospect of a strong dollar, Mr. Xie said that there were still arguments on the cause. On the one hand, one rate hike just occurred due to domestic reasons; on the other hand, a strong dollar might be the result of the competitive devaluation of Yen and Euro. For China, Mr. Xie believed that the imbalanced supply and demand of foreign currencies would be eased in the future. And private sectors would increase the need for foreign assets and there would be room for the increase of foreign debts. The opening of the debt market is expected to bring the inflow of 420 billion dollars in 5 years.
