Zhang Monan's Influence On The Strong Dollar Cycle

The adjustment of the global economy since the 2008 financial crisis can be roughly divided into two stages: the first stage is from 2009 to 2011, and its economic characteristics are the re industrialization process led by the emerging market, benefiting from expansionary economic policies, and the strong growth of the emerging markets, especially the BRICs. The second stage is the second half of 2011. The main performance of the economy is that the growth of the emerging market is under the pressure of inflation and asset price bubbles, and the economy continues to descend. The developed economies, led by the United States, have gradually completed the debt market of the private market, and the economy has gradually stepped out of the bottom and begun to recover.

Judging from the comprehensive leading indicators of the OECD, the current global economy is in a weak recovery stage, but its structural differentiation is obvious. The US economy began to go up after the bottom of 2011, and the European economy picked up after the bottom of 2012, and the G7 market showed a gradual recovery trend as a whole. On the contrary, emerging markets have been relatively depressed since 2011, especially by the withdrawal of QE from the US Federal Reserve. They are generally exposed to capital outflows, currency devaluation and financial market turmoil.

The Fed's rate hike cycle is expected to begin in 2015. Although the Fed is still cautious about raising interest rates, most of the agencies in the global financial market predict that the Fed's first interest rate increase in September 2015 is likely to become a probability event. In the June 2014 FOMC meeting minutes, we refined the types and methods of monetary policy instruments used by the Federal Reserve to raise interest rates, and basically determined that we should take the excess reserve ratio IOER as the center and use the overnight reverse repo rate RRP to construct a "lower interest rate limit" which is slightly lower than that of IOER, thus forming a mechanism of raising interest rates between effective interest rates. The target rate of adjustment of the federal funds rate is 25bp, that is, the first rate hike may be increased by 25bp or 50bp.

By contrast, the monetary policies of the major developed economies are heading for a big divergence. The European Central Bank has launched QE, which will carry out quantitative easing. Japan's economy is still lingering on the brink of recession, especially in view of the slow growth rate of inflation in Japan. The Bank of Japan has decided to provide more support for the economy in terms of monetary policy, so as to prevent the increase in consumption tax rate in April 2014, resulting in an economic downturn and a 2% inflation target. The Bank of Japan will increase its purchases of government bonds and expand its financial assets purchased from banks and other financial institutions to stimulate financial institutions to increase lending to enterprises and provide more liquidity to the market. Affected by this, the US dollar will continue to appreciate against the euro and yen.

If we consider the question of the US dollar cycle again, the risk is more worthy of high vigilance. Since the establishment of the Jamaica system in 70s of last century, the US dollar trend has seen five stages of depreciation and appreciation cycle. To sum up, the following basic characteristics are shown: first, the depreciation and appreciation of the US dollar show obvious cyclical characteristics, and each cycle has a considerable appreciation or depreciation. Second, the US dollar exchange rate trend is greatly influenced by the size of the US debt and monetary policy, especially the interest rate policy. Third, the major adjustment of the US dollar exchange rate is often accompanied by other countries' debt crisis or financial crisis.

The appreciation of the dollar further raises the global debt burden. According to IMF forecasts, the total debt of developed economies in 2014 was US $50 trillion and 950 billion, an increase of US $2 trillion and 320 billion over the same period last year, and the debt ratio of developed economies was 108.32%, up 0.66 percentage points from the same period last year. The debt risk is still plaguing the developed economies. According to statistics, the ratio of global debt burden (including private sector debt and public sector debt) to national income rose from 160% in 2001 to nearly 200% in 2009 after the outbreak of the financial crisis, and to 215% in 2013.

At present, dollar It has entered a strong cycle, which will increase the risk of overseas debt in many dollar denominated emerging economies, and push up the global debt burden and raise the cost of financing. According to IMF statistics, after the 2008 financial crisis, the scale of overseas debt issuance of non-financial enterprises in emerging markets has surged sharply. Most of them are emerging market big enterprises using offshore bonds issued by offshore subsidiaries and cross-border foreign currency loans to carry out capital arbitrage transactions. According to the International Finance Association, 2014~2018, all Emerging countries The corporate debt that needs to be extended will reach US $1 trillion and 680 billion, of which about 30% will be denominated in US dollars. If the US dollar enters the appreciation channel, the cost of bond renewal in emerging economies will increase significantly, and the risk of debt will rise.

The global three emerging market countries have greater risk of tail. With the tightening of US monetary policy and the appreciation of the US dollar, capital outflows in emerging markets have led to this. market The decline of MSCI index, the depreciation of some emerging market currencies and the rise of volatility, are more vulnerable to three types of countries: one with high leverage. Countries with high short-term external debt are more vulnerable. In order to overcome the external impact of the financial crisis, emerging economies are borrowing heavily, resulting in a rising debt rate. Such as India and Argentina. Among them, the proportion of India's short-term external debt to total external debt rose from 23% in 2009 to 30% in 2013, exceeding 25% of the international warning line.

The two is the "double deficit" country. For emerging markets, the current account is a balance point of external balance in the economy. Current account surplus means that debt accumulative speed is slower and economic competitiveness is stronger. Conversely, economies with deteriorating current accounts mean higher debt accumulation and greater probability of a crisis when faced with external shocks. Since 2014, emerging markets have absorbed the imbalance of the international economy instead of the marginal countries in Europe, thus becoming the main undertakes of the current account deficit, especially in India, Indonesia, Brazil, Turkey and South Africa. These countries have the most serious economic slowdown and have huge current account deficits and fiscal deficits.

The three is resource based exporting countries. After the withdrawal of the US Federal Reserve QE3, the US dollar has entered a cyclical rise channel, bringing commodity prices down, and the economies of resource producing countries such as South Africa and Brazil will face a major adjustment. These countries will have to rely on net capital inflows to maintain capital turnover after the current account surplus decreases or even deficits. This will further increase the pressure of debt repayment and lead to a sharp rise in economic vulnerability. In 2015, the new global financial turmoil will be inevitable.