RMB Appreciation Is Expected To Encourage Risk Free Arbitrage Activities

A clear example of the timing error of P is: on the one hand, the cross-border movement of short-term capital has been partially liberalized; on the other hand, the mainland's exchange rate of RMB has been strictly controlled.

"Fear of revaluation" has been like this for many years.

Such a situation has resulted in a result of a two currency exchange rate.

Internationally, in addition to Latin countries, no currency has two prices.

There are two prices in the same currency, which will certainly result in arbitrage.

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< p > how to arbitrage? There are many ways.

Here, for example, there is a mainland export company with a number of products worth 100 million US dollars.

Now the company sells the goods to a related company registered in Hongkong.

The Hongkong company paid $100 million to the mainland parent company.

The second step is to export the US $100 million to Shanghai for 620 million RMB, and the mainland RMB exchange rate is 1:6.2.

The third step, the mainland export enterprises use 618 million yuan to export the products to Hongkong related companies.

The fourth step is that Hongkong related companies use this 618 million yuan to exchange 100 million yuan in the Hongkong foreign exchange market, and the Hongkong RMB exchange rate is 1:6.18.

This is the so-called "one day tour of the bonded area".

After the end of the "one-day tour", the export enterprises still have the value of 100 million US dollars, less than a href= "//www.sjfzxm.com/news/index_cj.asp" > affiliated enterprises < /a > still hold 100 million US dollars.

The only difference is that the mainland export enterprises earn 2 million yuan in arbitrage.

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< p > there is arbitrage in addition to arbitrage.

The basis of arbitrage is interest spread. How to do it? This is called fake trade and real arbitrage. It also belongs to "one day tour" and so on.

The method of arbitrage is even more varied.

Just one example.

The first step is that an importer of the mainland will deposit a sum of money at the Bank of China as collateral, depending on the circumstances, and the Bank of China has opened a trade letter of credit to the importer.

With trade letters of credit, importers purchase 618 million yuan of goods from their Hongkong affiliate.

The second step is that the Hongkong associated company has secured a 100 million year loan from HSBC for 1 years on the basis of a trade credit. The Hongkong exchange rate is 1:6.18.

The third step is that the associated company buys the goods from the mainland parent company with us $100 million.

In the fourth step, the mainland parent company sold the US $100 million to the central bank and got 620 million yuan (where the exchange rate is 1:6.2 or 1:6.18 is not important).

And then deposit 620 million yuan into the Bank of China for a period of 1 years.

1 years later, the Bank of China and HSBC settled the exchange rate which was locked 1 years ago.

The interest rate of RMB deposits is much higher than that of Hongkong dollar loans.

In this way, the arbitrage companies in the mainland will get a good margin.

The general view of the financial market is that RMB arbitrage is the easiest, safest and most abundant arbitrage in the world. The key question is whether you can find a way to borrow a sum of money from Hongkong and invest in RMB assets in the mainland.

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< p > 2010 to the fourth quarter of 2011, mainly arbitrage.

During this period, the renminbi in Hongkong was cheaper than the renminbi in the mainland.

From the end of 2011 to the end of 2012, it was also a practice of arbitrage, but the mainland RMB was more expensive than Hongkong.

In 2013, people have already touched the road, also understand the market, plus the appreciation of the RMB appreciation, there is a large-scale arbitrage action, arbitrage arbitrage are done, but in this period of time is mainly arbitrage.

The result of arbitrage is that if you borrow money, hot money will flow into China.

Despite a small trade surplus, foreign exchange reserves have increased substantially.

The internationalization of RMB is intended to reduce the increase in foreign exchange reserves, but the opposite is true.

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< p > > a href= "//www.sjfzxm.com/news/index_cj.asp" > Central Bank < /a > a period ago, guiding the RMB exchange rate < a href= "//www.sjfzxm.com/news/index_cj.asp" > depreciation > /a >.

If the central bank can form a pattern of two-way fluctuation of exchange rate, it is very difficult for you to lock in the exchange rate, and the risk of arbitrage will be greatly increased.

The fluctuation of the RMB exchange rate and the devaluation trend can curb arbitrage activities to a certain extent.

This is a clever approach, but it has limitations and can not solve the arbitrage problem fundamentally.

In theory, arbitrage can only be suppressed only when the full appreciation of the renminbi and the expectation of depreciation and the expected depreciation amount are equal to the spread of the renminbi against the US dollar.

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< p > liberalization of capital account is a more realistic, fundamental and more important issue than RMB internationalization.

To realize the internationalization of RMB, China must first consider the timing of liberalization of capital account in China.

The process of RMB internationalization should be subject to the liberalization process of capital account.

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