View Full Version : Viewpoint about the Apreciation of RMB

Jul 22, 2005, 12:12
Starting from July 21th in Beijing Time,RMB starts to increase the value by 2%,this is a great event in China ,hope to listen to the viewpoints on this forum.

Quoted from http://www.ft.com

China has bowed to intense foreign pressure and growing domestic economic imbalances by replacing its decade-old currency peg to the US dollar with a more flexible exchange rate system that will be tightly managed by the central bank.

The People's Bank of China, the central bank, announced a 2.1 per cent revaluation on Thursday and the details of a system that will allow the renminbi to fluctuate by 0.3 per cent, up or down, in daily trading.

The PBoC said the exchange rate would be kept gbasically stableh and set with reference to a basket of unspecified currencies.

The decision is a victory for the administration of President George W. Bush, which had urged Beijing to revalue but also fended off congressional demands for trade sanctions if China refused to move.

While the PBoC's statement was not completely clear, the US Tresury said it expected China to allow the renminbi to rise against the dollar by 0.3 per cent a day, with the closing price becoming the opening price the next day.

John Snow, Treasury secretary, said the mechanism provided gsignificant amplitude for the currency to moveh. The Treasury would track how well it reflected underlying market conditions over time, officials said.

A senior Tresury official added: gThey have not indicated that it is capped. We take them at their word at this point that this mechanism will be orientated toward market supply and demand.h

The International Monetary Fund called for maximum currency flexibility under the new system, saying it would allow Beijing to run a more independent economic policy.

The Group of Seven leading industrial nations lauded Chinafs decision to revalue its currency, saying it would help global economic growth.

gThis more flexible exchange rate regime will contribute towards global economic growth and stability,h ministers said.

Beijing's policy change was consistent with its aim of modifying the currency system only gradually, to maintain the economy's high growth rate. The intention, the bank said, was to gpromote basic equilibrium of the balance of payments and safeguard macroeconomic and financial stabilityh.

With China's trade surplus rising sharply and its foreign exchange reserves reaching a record $711bn last month, the bank's ambition of equilibrium in the balance of payments also suggested Thursday's small revaluation would not be the last. The bank said market developments would influence its decisions to make more adjustments to the renminbi's value.

China hopes the announcement will ease rising tensions with the US and clear the way for a successful visit to Washington in September by Hu Jintao, China's president.

Analysts said the revaluation, although small, and the introduction of more currency flexibility, would help boost consumption in China and take the steam out of rapidly growing exports, now rising by 30 per cent a year. gBoth domestic fiscal and monetary policies are likely to gear towards stimulating domestic demand,h said Hong Liang, of Goldman Sachs, in Hong Kong

In an immediate response to the move, Malaysia dropped its currency peg against the US dollar and switched to a managed float against a basket of currencies. The new exchange rate against the US dollar will be made known on Friday. Malaysia's decision was taken after the spot ringgit market was closed and the currency is not traded offshore.

Jul 22, 2005, 15:00
The international hedge funds will flock into Asian financial markets untill they found Yuan and other sensitively affected Asian currencies will price up enoughly to their expectation,
(Sure they will check the reaction of POCB )

When Asian currencies' prices go up as they(hedge fund holders) are pleased to make impressive marginal profits,they will withraw their hedge funds suddenly.

Asian currencies gained more fluctuation so each Central Banks will try efforts to prevent this affected fluctuational range.

For example, if the more USD will influx into the Korean financial market,the currency fluctuation amount wil increase therefore it will influence to the price rise of the properties in Korean domestic economy.

I think the dollar reserve accumulation speed in each Asian Central bank will be slower so they will less purchase amount of US national bonds after this RMB revaluation announcement.

What about the US economy if there would be less puchasers of their national bonds?
They will have to look for other domestic sources to raise supplied funds to fill up their big twin deficits (one the trading and the other their governmental )

But will they change their consumption culture and money lending(loan centered) ideas to plan their economic life? No they will not,so where domestically would be their new sourses for the necessary additional fund? The only that comes in my mind is Federal interets rate,the Federal reserve bank will raise interets rate to reduce the twin deficits. (means their economic growth speed will slower and more than anything else ,it might cause the fall of property price of US real estate market-bad sign )

Jul 23, 2005, 09:11
It may be so convenient for the RMB holders now.

When they think it's the end of the appreciation ,they can change the RMB into Dollar or other currency ,and flee away.

It's just a problem for Chinese exporters that they HAVE TO raise the price to avoid the rising 2% loss ~~

Aug 9, 2005, 19:46
Well, the revaluation of the RMB is of limited scope, as it is now pegged to a basket of currencies instead of the dollar. China yielded partially to pressures to revalue its currency, but not by too much.

Of course, this partly benefits the nearby countries, as chinese imports are now a little bit less competitive, but Beijing is not about to let one of its major trade advantages go away.

Still, I agree that this step is very important: it clearly shows that Beijing truly understands the future role China will play in world economics, and that a stronger RMB will be a certainty in the future. But not until China has grown considerably more.

On a sidenote, the revaluation of the RMB also gives a boost to the yen, as it makes investment in Japan a better option to many foreign funds. Which isn't all that positive for the japanese economy, though...


Aug 22, 2005, 19:43
I heard that some people's salary, maybe people working for non-Chinese owned companies, is pegged to USD, is it correct?

Aug 26, 2005, 20:36
I heard that some people's salary, maybe people working for non-Chinese owned companies, is pegged to USD, is it correct?

That's impossible :D , after all ,it's relatively not so big change for the rate from 8.27 to 8.11 to USD