Analyst Goikhman told what the course will be when using the membrane
Russian Minister of Economic Development Maxim Reshetnikov spoke about using the Chinese model of currency regulation for the ruble at the end of last summer – beginning of autumn. His statements from the high rostrums of the State Duma and the Moscow Financial Forum about two ruble exchange rates and a membrane between them sounded promising and intriguing — especially for the uninitiated public. The ruble weakened sharply during this period, the president ordered the government to strengthen it, and apparently, a discussion broke out within the financial and economic bloc: to do this using traditional methods from the arsenal of the Ministry of Finance and the Central Bank or unknown Chinese ones. Apparently, the “traditionalists” have won the dispute so far: the Central Bank raised the key rate, and exporters were obliged to sell foreign exchange earnings on the stock exchange. The ruble has strengthened, but not much. And if he goes into a steep dive again in the near future, it is possible that Chinese recipes “from Reshetnikov” will be applied to him. What is the model for managing the yuan, what does the membrane have to do with it, and can we transfer the Chinese experience to the Russian foreign exchange market? We addressed these questions to Mark Goikhman, an analyst at the Capital Skills Financial Academy.
— As you know, “The East is a delicate matter.” The specificity of China is that even its currency there has two types. One country — two yuan! The first one is facing the outside world, this is the offshore yuan (CNH). It circulates abroad, in accounts in foreign banks, is freely bought and sold, and traded on stock exchanges — mainly in Hong Kong, but also in London. The exchange rate is determined by the market. Therefore, the People's Bank of China cannot directly influence this rate. CNH is used by foreign companies to invest in foreign Chinese assets and to purchase goods exported from the Middle Kingdom.
Well, the second yuan is “for yourself”, for the domestic market, onshore (CNY). In China it is called “zhemninbi”, that is, “people’s currency”. It is extremely difficult to take it out of the country abroad; there are strict restrictions. This was done so that money circulating within China, earned by the Chinese themselves and foreign investors, would remain in the country and there would be no outflow of capital. For example, residents of the Middle Kingdom can buy from a bank or transfer abroad an amount of no more than 50 thousand dollars per year. And the transfer abroad of profits of Chinese firms over $50 thousand is controlled separately. And difficult preparation of documents is needed to withdraw currency from the country.
The exchange rate of the onshore yuan is determined daily by the People's Bank of China, its fluctuations in the domestic market are no more than 2% of the established level.
— There is a certain “partition” between the two yuan and their flow. Maxim Reshetnikov used a fairly correct and figurative word: “membrane”. Not a blank wall, but not free movement either. Namely, a flexible, partially permeable “membrane”. But it is mainly used by the People's Bank of China itself. It regulates the flow of yuan funds that enter the foreign market. Can loosen or tighten this «diaphragm valve». Including from our own funds, in particular from international reserves. Thus, it indirectly affects the supply and demand of foreign yuan in the foreign market. Therefore, the external and internal courses are like twins. Still, they have the same “surname” — Yuan, only their “names” are different. For example, on October 13, onshore CNY was worth $7.306, and offshore CNH was $7.313. This is the effect of communicating vessels, the levels in each of them are approximately equal.
— This is a very interesting mechanism. China is famous for its inventions — the compass, paper, gunpowder… So it made its mark on the foreign exchange market. Two yuan appeared in 2009 to simplify payments with Hong Kong and in general with the outside world and to separate them from domestic use, in which the national currency would probably be weaker if it flowed freely outside.
Although the general idea and its premises are not new. After all, the dollar had a similar practice, for example, when the “gold standard” was abolished in the 1970s, the peg of the dollar to gold. At that time, the American currency, until its single market was formed, was quoted separately in Europe, regardless of trading in the United States, with the organization of these transactions in European banks and on trading floors.
And, for example, Poland does not want to switch into the euro area, even while being part of the European Union. He jealously preserves his native zloty, fearing the same thing — currency depreciation and high price rises. For her, the euro is a kind of “external yuan”, and the zloty is the “internal yuan”.
— Pros — in an effort to protect the domestic market from excessive possible depreciation of its currency, from inflation, and the transfer of funds abroad. And at the same time, facilitate trade and financial relations with foreign countries.
But, as you know, disadvantages are a continuation of advantages. Same with the yuan. The “difficulties of transferring” it from the country are already undermining its market convertibility, attractiveness among foreign investors, and impeding the influx of foreign investment and economic development. Still would! After all, it is extremely difficult to withdraw earned profits for use outside China. Therefore, recently, against the backdrop of a reduction in capital inflows from outside and a slowdown in economic growth, Beijing has been seeking to gradually soften the conditions of currency regulation. For example, in September it was announced that in the Shanghai Free Trade Zone there would be no restrictions for foreign investors to withdraw currency.
— For Russia, the idea of “one country, two currencies” has become popular for two main reasons.
The first is sanctions restrictions on the external payments of our banks, investments, exports and imports. In such conditions, there is a temptation to withdraw part of external transactions with the ruble and currencies from Russia to foreign structures, as China does with the offshore yuan.
Secondly, there is a significant outflow of rubles from the country: the withdrawal of currency by the population, foreign companies operating in Russia, and by Russian business. This greatly increases pressure on the ruble and intensifies its depreciation.
And here is the broad idea of using the Chinese model for the ruble. It is much broader than just to limit the depreciation of the ruble. Let the “external ruble” circulate in banks of third countries that are not “unfriendly”. For example, in the UAE or Hong Kong, which has vast experience and worldwide recognition in such operations.
— This situation would simplify ruble payments for our exports from foreign buyers. They would not need to transfer currency to Russian banks with risks and sanctions restrictions in them. We bought rubles in Hong Kong and transferred them through the “membrane” to Moscow. Or it would become easier to supply foreign products to Russia with payment in rubles. But what if there is an opportunity to buy and sell rubles freely on foreign platforms! After all, our country’s exports are higher than imports. The amount of currency received is greater than the amount spent. And the rubles coming to foreign accounts from payments by them for imports to Russia, in principle, can be used to pay for our exports. Demand for the ruble and its convertibility could increase. Rubles could be used more to pay for imports. Foreign trade would receive additional incentives by reducing barriers.
At the same time, the other, internal side of the “membrane” would prevent the outflow of rubles from Russia. Demand for currency would become further constrained. This would also reduce the pressure on the weakening of the ruble.
— Minister Reshetnikov’s idea is still unlikely to be implemented in practice. The Central Bank and the Ministry of Finance, who are unanimously opposed, give the following arguments.
Such a practice will cause duality of course, high differences between internal and external. This will create distortions and disorientation for foreign trade, stimulating “shadow” turnover and speculative transactions, fictitious transactions.
At the same time, Reshetnikov himself made a reservation that it is necessary to avoid large deviations between external and internal exchange rates. But it will not be possible to achieve this now in Russia, unlike China. Yes, Beijing balances the “communicating vessels” by regulating the flow of yuan, including from reserves.
But in Russia, due to sanctions and the freezing of part of the gold and foreign exchange reserves, such actions will not happen in reality. Access to “hard” currencies is difficult, and their reserves are low. And internal strict non-market restrictions can lead to the formation of a “black” market. Prominent state banker Andrei Kostin is right: in the case of a “membrane” the exchange rate is “we will have one at 150 and the other at 250.” This would be a completely destructive situation.
In addition, the “Chinese warning” must be taken into account. Beijing, as we see, is gradually moving away from the model of administrative methods of regulating the foreign exchange sector within the country. Towards a more free circulation of currencies, which already exists in Russia. There is hardly any point in moving away from it, looking at the experience of the Middle Kingdom.
After all, then, instead of stimulating foreign trade and containing the weakening of the ruble, we will get additional difficulties in these sectors and in the economy as a whole.
— Can I answer with a short verse of my own composition:
Ready to meet you
A new abusive meme?
It will be a lucky one
< p>Is the ruble “membrane”?