Viewpoint about the Apreciation of RMB
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 “basically stable” 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 “significant amplitude for the currency to move”. The Treasury would track how well it reflected underlying market conditions over time, officials said.
A senior Tresury official added: “They 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.”
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’s decision to revalue its currency, saying it would help global economic growth.
“This more flexible exchange rate regime will contribute towards global economic growth and stability,” 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 “promote basic equilibrium of the balance of payments and safeguard macroeconomic and financial stability”.
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. “Both domestic fiscal and monetary policies are likely to gear towards stimulating domestic demand,” 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.
