Before 2007 the Federal Reserve’s balance sheet for nearly 900 billion U.S. dollars in 2010 to 2.3 trillion dollars, an increase of 2.6 times more than two years. The corresponding European Central Bank and the Bank of Japan significantly expanded in the balance sheet.

Now the U.S. financial chain has been broken, the bank faced with a lot of non-performing assets, the deterioration of the balance sheet does not allow banks to more conservative lending to the real economy, not by financial institutions to promote economic development, put a lot of money to rely on to promote economic recovery. Government and the market two hands, which hand they used effectively which hand. The fundamental issue of money regardless of the cost the U.S. a lot of reckless, M2 is the level of developed countries has risen to 10 trillion, mobile has surpassed pre-crisis levels. Therefore, one is the real economy and the recovery of the remaining countries in the difficult lot of uncertainty, while the other is a global asset prices and liquidity in extreme swelling. I expect, and finally a possible risk of stagflation during the Great Depression. The level of global prices rose in 2010 and asset price bubbles, may be another global potential risks to replace the current “money war.” “Currency war” is currently reflected in the surface not affected the real economy, but in the event of an asset bubble crisis will impact the global real economy.

In this “currency war” in Japan intervened in currency markets first, and then, Singapore, India, South Korea and Brazil were all involved. Dispute over how the exchange rate reflects the mentality of nations?

Japan and other countries to stimulate the exchange rate market launch, the main response to the “weak dollar policy.” “Weak dollar policy” includes two aspects, one loose monetary policy, and second, the dollar down. These two policies in the global currency markets and currency markets affect the situation as a whole, the dollar currency in the world always play a “currency anchor” role, the dollar continued to depreciate the exchange rate will lead to global shocks. Put money in Japan are passive, so that dilution of U.S. currency, the euro exchange rate volatility to calm down. Brazil not only measures to intervene in currency markets, but also foreign investors to buy its own bonds to levy a financial transaction tax, the tax rate from 4% to 6%, and the bond futures market also increased, significantly from the original 0.38% to 6% increase . In response to the financial crisis, countries together to a fresh shot to make. Now is not, and fragmented, uncoordinated and disorderly competition. Originally a natural disaster, it is man-made disaster. This state is terrible, the economy has changed direction, than simply the exchange rate is also terrible battle.

The Way of Chinese currency

China must do bigger and stronger capital markets, including financial capital, industrial capital, the state capital and private capital, the four capital system to form a joint force. Finance should have the right to speak, have stronger capital. On the one hand to protect our foreign reserve, do not passively diluted by shrinking U.S. debt. Although so far the central bank did not disclose the structure of China’s foreign reserve assets, how many dollars, but the overall measure accounted for 65% of U.S. dollar assets, if the current 2.64 trillion U.S. dollars China’s foreign reserve calculation, there are 1.7 trillion of U.S. dollar assets. If the United States put pressure on RMB appreciation during the year to 3.5 percentage points to 3, then China’s foreign reserve will shrink hundreds of billions of dollars. On the other hand, China will continue to buy U.S. Treasury bonds caught the passive loop position.

The long term, although we are aware is the general direction the United States bond holdings, but there is no way the short term. 8,9 months of this year and holdings of U.S. Treasury bonds, we now hold U.S. Treasury bonds reached 868.4 billion U.S. dollars, approaching one trillion mark, in fact, is a bottomless black hole. U.S. debt after the financial crisis entered a rapid upward trend in 2010, the White House predicted its debt ratio will reach 94%, the U.S. debt crisis could become an even greater crisis.

The key is the future passive appreciation of the RMB in China should be out of the trap, do not struggle with the United States of RMB revaluation, the yuan is actually behind the global imbalances and financial hegemony of the price problem. Even if the yuan to appreciate, but also their own decisions, but also to take the slow and gradual appreciation of the strategy. Should consider how China’s future debt into a financial voice and the ability of the U.S. game, the Chinese trade surplus or deficit should not be from the level of the exchange rate with the U.S. about the issue, but from the level of creditor and debtor countries about the exchange rate. This can shift public opinion first, the surplus and deficit from the current controversy over the transfer to the creditor and debtor levels up; Second, it can indirectly stop the impulse to the U.S. dollar junk.

China has accumulated a huge external storage, the accumulation of the reasons is that our long-term implementation of the current account surplus under the two-mode outside the reserve. If you can open the capital account, the Tibetan Department of the people, to promote the financial capital to go out and slow down the amount of external storage, you will not worry for the management of foreign reserve. In fact related to our future should change foreign trade growth, trade balance to promote trade and capital imports to ease the way to go out two double surplus problem. Should diversify foreign exchange management, the excess foreign reserve should be converted into foreign investment, increasing on the real economy running. Can also be combined with the establishment of the Financial Industry Fund, Innovation Fund and Technology Fund.

RMB appreciation is the trend, the key now is how to accelerate the improvement of the RMB exchange rate mechanism. Priority is to enhance the internationalization of RMB internationalization of the RMB and international investment flows, but also try to issuance of RMB bonds internationally, like the United States as a sovereign debt. To develop low-carbon finance, carbon currency is the general direction of future development. To the dollar, euro and yen are in the pipeline and carbon currencies, the renminbi how to work with low-carbon linked to carbon can be formed sovereign currency, the renminbi will be more conducive to promoting the process of internationalization.

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