Talk about how ordinary people deal with exchange rate risks?

In China, the purchase of gold is not limited for the time being. Many investors still buy gold as a kind of consumption, and some people use it as a profit tool to chase gold price fluctuations. In fact, when you can't choose a large number of dollars, yen, etc. to balance exchange rate fluctuations, holding gold can also hedge the RMB exchange rate risk for a long time. First, there is a risk called "do nothing"
If you were holding the British pound sterling before last Friday, sorry, whether you are on a leisurely vacation or a busy job, in just less than three trading days, your wealth is unknowingly Has shrunk by 10%. In the field of wealth management, there is a risk called “do nothing”.
As the fourth largest reserve currency in the international market, most of the world's central banks use it as part of their foreign exchange reserves. For central banks, the short-term plunge of the pound will not be particularly large, because the pound is falling and it is denominated in pounds. The international reserve assets such as the US dollar, the Japanese yen and the gold are all rising. The rise of these assets has well hedged the decline of the British pound. The real losers are ordinary investors.
Most investors cannot hold the relevant proportions of US dollar, Japanese yen, gold and other assets, like the central banks of the countries. They either have a single local currency savings or hold credit assets such as stocks. However, the European stock market has plummeted and further expanded. The loss of investors. In fact, two days before the Brexit incident, the Nigerian currency, the largest oil producer in Africa, “crashed” and plummeted 40% in two days. Perhaps no one will care about Nigeria’s currency depreciation, but the global exchange rate fluctuations brought by the pound are not far away from us.
In the three trading days after the Brexit referendum, the central parity of the renminbi was continuously lowered by 870 basis points. The central parity of the renminbi against the US dollar fell below the 6.65 mark, setting a new low since 2010. The exchange rate of the RMB against the US dollar has fallen by more than 10% in the last two and a half years. It is worth noting that this decline occurred under the condition that China's foreign exchange market was not open and the RMB exchange rate was severely restricted.

2. Why did Zhou Xiaochuan say that the younger generation is not prepared for exchange rate fluctuations?
On June 24, Zhou Xiaochuan and the International Monetary Fund President Lagarde had a very interesting conversation in Washington, DC. Zhou Xiaochuan said: In the decade after 2003, China’s exchange rate was relatively stable and showed a one-way appreciation. Therefore, the younger generation may have experienced only one-way changes in the exchange rate and may be under-prepared for exchange rate fluctuations. But the international situation is constantly changing, and there will be many new situations, as we saw yesterday (the British referendum).
China’s younger generation is not prepared for the volatility of the exchange rate. The decline in China’s economic growth rate and the adjustment of the real estate market are also likely to be inadequate, because the younger generation has not experienced the unemployment problem caused by the economic slowdown. Experienced the “cruel” of the falling house price cycle, just as before 2014, domestic investors did not experience the depreciation of the renminbi. “Insufficient preparation” is actually the biggest risk.
Of course, when talking about the renminbi, we really need to distinguish it from the Russian ruble, the Brazilian real, the Argentine peso, the South African rand, the Turkish lira, etc., but the RMB exchange rate is still relatively more than the euro, the pound, etc. The big gap, in terms of the nature of international reserves, the demand for renminbi reserves is not high, and the demand for arbitrage trading is greater. With the gradual opening up of the foreign exchange market, exchange rate fluctuations will become more apparent, at least volatility such as the pound and the euro, which can be seen in the RMB market in the future.

Third, the method of dealing with the fluctuation of the RMB exchange rate is very limited.
In dealing with fluctuations in the RMB exchange rate, we must first be able to identify the risks caused by exchange rate fluctuations. If you cannot understand the extreme impact of exchange rate fluctuations correctly and thoroughly, it will be difficult to evade and manage risks. The fluctuation of the RMB exchange rate directly affects the future deposit interest rate, wealth management product income, bond credit level, stock market and real estate market operation cycle, etc. In response to exchange rate risk, it is actually managing wealth.
Secondly, there is a directional judgment on the RMB exchange rate, that is, while the trend is weak, bilateral volatility is more obvious. In this case, it is necessary to prepare for long-term response. Appropriately reduce the allocation rate of assets with higher capital flow sensitivity, such as the allocation of stock market and real estate needs to be more cautious, because the stock market and real estate are very regional assets, do not have international attributes, once the valuation is high, the exchange rate affects The impact of capital flows under it will increase. In other words, if you buy stocks or real estate in order to hedge the risk of RMB depreciation, the risk is greater at the current valuation level.
Third, the strategy must focus on the long-term, and the tactics must also take into account the reality. What is reality? China's liberalization of foreign exchange controls is still a long process. No matter what method you use to predict the inevitability and the rise and fall of the RMB depreciation, with the strong intervention of the government, the RMB exchange rate will stage unpredictable trends in stages. Therefore, do not overstate extreme forecasts for the RMB exchange rate, and do not use this forecast to dominate a certain stage of investment.
Fourth, if you can't hold different types of currency hedging exchange rate risk, gold is the best option. Every time I say this, everyone feels that I am advertising, which is not the case. China has always had clear regulations on “investment purchases and exchanges”. If your purpose is to hedge the RMB exchange rate risk, the purpose of purchasing foreign exchange is of course investment. Sorry, your behavior is limited.
As I said in the previous article, for central banks, banks and other financial institutions, while holding various currencies, the risks are hedged against each other, but this has nothing to do with ordinary investors. In the case of limited investment in foreign exchange purchases, the method of hedging the RMB exchange rate risk is stretched, or you can find ways to invest overseas, buy homes (many people do not have this condition), or buy more gold.
In China, the purchase of gold is not limited for the time being (not easy to say in the future). Many investors still buy gold as a kind of consumption, and some people use it as a profit tool to chase gold price fluctuations. In fact, when you can't choose a large number of dollars, yen, etc. to balance exchange rate fluctuations, holding gold can also hedge the RMB exchange rate risk for a long time. The recent plunge in the British pound exchange rate is accompanied by a surge in gold denominated in sterling. Since last Friday (June 24), dollar-denominated gold has risen 5.6%, but the price of gold priced in pounds has risen near. 19%.
Gold itself is a kind of foreign exchange. After 2002, China's gold market has been fully marketized, but it is worth noting that the reason why the central bank did not make a new round of restrictions on the purchase of gold is because China still has enough dollar reserves. Respond to the balance of payments. Since last year, China’s US dollar foreign exchange reserves have begun to decline, while imported gold directly consumes US dollar reserves.
According to the data released by various export markets, the net import of China's gold in 2015 exceeded 1,300 tons. Based on an average of $1,100 per ounce last year, it would cost nearly $50 billion to import 1,300 tons of gold, accounting for 10% of China's foreign exchange reserve reduction in 2015 (China's foreign exchange reserves fell by $512.7 billion in 2015).
According to media data, China imported 121,970 kilograms (121.97 tons) of gold from Hong Kong in May this year, with exports of 20.924 tons and net imports exceeding 100 tons. This data is only data imported from Hong Kong within one month of May. If most investors in the Mainland begin to hedge the RMB exchange rate risk by purchasing gold, the import volume of gold will continue to increase, and the consumption of foreign exchange reserves will become more obvious. The possibility of restricting imports will not be ruled out in the future.
For example, like India, the government has repeatedly raised its gold consumption tax and import tax in order to protect the US dollar foreign exchange reserves and curb the consumption of gold. If this happens in the Chinese market, the entire gold market will be severely hit and it will be very expensive.

Fourth, the official level of holding gold reserves is a misunderstanding
Including some professors at Harvard University, many experts in the gold industry are encouraging emerging economies to buy gold to reduce their dependence on the dollar. To a certain extent, this is correct, but I don’t think it should be encouraged to buy at the official level. This is a very big mistake.
The most controversial issue of gold is the problem of monetization and commodification. The other is the problem of strong investment attributes but low returns. I don't think this is the point. The ultimate torture should be whether gold can be truly marketized. If more central banks reserve, the greater the obstacle to future marketization. Emerging markets have increased their holdings of gold reserves, mainly because of the risk of depreciation of the US dollar at the central bank level and the endorsement of credit for the local currency. However, the gold held by global central banks has accounted for 30% of the tradable gold, directly affecting market liquidity and future supply. The opacity, if the mobility of private reserves is limited, the financial attributes of gold will be further reduced, and the status of the dollar will rise. The so-called bad money (dollars) is expelling good money (gold).
Emerging countries need to re-examine the policy on gold. A single increase in official gold reserves is only a tactical arrangement. It is of little significance. It will increase and activate private gold reserves, making it a private financial asset to replace the US dollar. The pursuit of the US dollar caused by (depreciation) prevents the collapse of its sovereign credit currency, and finally uses the dynamic credit system of gold + local currency to form a new international credit currency competition system.
Therefore, any statement that advocates that the government should control and dominate the gold market is worthy of vigilance. Committed to the flow of private gold and the policy of “hiking money in the people” will play a very important role. If in the process of the continuous decline of the RMB exchange rate, Chinese market investors use gold instead of the demand for the US dollar, China's imports of gold will continue to increase, it will only form a result, that is, the US dollar foreign exchange reserves are converted into gold reserves. .
The rise of the British and American economies is in exchange for the inflow of real money, and the rise of the Chinese economy, in exchange for trillions of dollars, is itself a historic risk. Throughout the historical development of the strong currency, the rise of the British pound is inseparable from the global gold and silver flow to the United Kingdom. The rise of the US dollar is also partly due to the global gold flow to the United States. If there is no gold reserve of more than 22,000 tons at that time, the United States It is difficult to establish the Brighton Forest System and the history of the dollar may be rewritten.
Former Federal Reserve Chairman Alan Greenspan recently interviewed Bloomberg about the issue of Brexit and other issues. The key point is that the root cause of the crisis in the Brexit is not refugees, not even the economy, but unsustainable welfare expenditures. In order to maintain this demand for welfare expenditures far above economic growth, the money supply has risen sharply, stabilizing at 6% and 7%, almost rising linearly. As for the solution, Greenspan said, "If we return to the gold standard, we will be fine as if we had abide by the actual gold standard in the 1913 gold standard. 1870-1913 is the most aggressive period of our American economy. That is the golden age of the gold standard. Everyone knows that I advocate the gold standard and laugh at me, but why does the central bank now hold gold?"
The Fed chairman only tells the essence of credit when he retirees, but Greenspan understands very well that the possibility that today's society can return to the gold standard is not great. Especially in the United States, the 8,000-ton gold reserve cannot give hundreds of thousands. Billion dollars endorsement. “Western Jindong” has provided China with an opportunity, but this opportunity is not an opportunity to implement the gold standard or strengthen the regulation of the gold market, but how the RMB and gold are in parallel and coordinated. When everyone is too worried about the RMB exchange rate, they can hold gold, so that the government can reduce the amount of money issued and increase the credit time of the local currency, instead of stimulating the people to rob the US dollar and avoid the "robbery" of the next round of the dollar's depreciation cycle. The role played by gold in restricting currency issuance and endorsement of the renminbi. The ability to make good use of the gold market is crucial for the renminbi. (Text / Sina financial opinion leader column columnist Xiao Lei)

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