| Author |
Message |
busyexpat
Talker
Joined: May 20, 2005
Posts: 101
Location: Hong Kong
Status: Offline
|
  Posted:
July 22, 2005 - 01:07 AM |
 
|
| Post subject: Discussion: 2.1% RMB Appreciation |
About six hours ago, China's RMB/Yuan became tradable at 8.11RMB to 1.00USD...a 2.1% instant revaluation from the decade old peg of 8.26RMB to the dollar. As well as this, China announced that it's currency is now pegged to a basket of currencies...see this link for which currencies are included in the mix:
http://www.bank-of-china.com/en/common/service.jsp
Here is the full text of the People's Bank of China's announcement at 7:00pm Beijing time yesterday, 21/07/2005:
Public Announcement of the People's Bank of China on Reforming the RMB Exchange Rate Regime
With a view to establish and improve the socialist market economic system in China, enable the market to fully play its role in resource allocation as well as to put in place and further strengthen the managed floating exchange rate regime based on market supply and demand, the People's Bank of China, with authorization of the State Council, is hereby making the following announcements regarding reforming the RMB exchange rate regime:
1. Starting from July 21, 2005, China will reform the exchange rate regime by moving into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. RMB will no longer be pegged to the US dollar and the RMB exchange rate regime will be improved with greater flexibility.
2. The People's Bank of China will announce the closing price of a foreign currency such as the US dollar traded against the RMB in the inter-bank foreign exchange market after the closing of the market on each working day, and will make it the central parity for the trading against the RMB on the following working day.
3. The exchange rate of the US dollar against the RMB will be adjusted to 8.11 yuan per US dollar at the time of 19:00 hours of July 21, 2005. The foreign exchange designated banks may since adjust quotations of foreign currencies to their customers.
4. The daily trading price of the US dollar against the RMB in the inter-bank foreign exchange market will continue to be allowed to float within a band of ??/span>0.3 percent around the central parity published by the People's Bank of China, while the trading prices of the non-US dollar currencies against the RMB will be allowed to move within a certain band announced by the People's Bank of China.
The People's Bank of China will make adjustment of the RMB exchange rate band when necessary according to market development as well as the economic and financial situation. The RMB exchange rate will be more flexible based on market condition with reference to a basket of currencies. The People's Bank of China is responsible for maintaining the RMB exchange rate basically stable at an adaptive and equilibrium level, so as to promote the basic equilibrium of the balance of payments and safeguard macroeconomic and financial stability.
And the link:
http://www.pbc.gov.cn/english/detail.asp?col=6400&id=542
Are you still in doubt? Also see www.xe.com/ucc and try finding the conversion rate for 100USD to RMB...you'll find it's already at 8.11.
Bank of China website doesn't seemed to have updated it's charts yet though: http://www.bank-of-china.com/en/common/service.jsp
Also see this latest NY times article:
http://www.nytimes.com/2005/07/21/business/worldbusiness/21cnd-china.h tml?ei=5094&en=e12a13cb678ded22&hp=&ex=1122004800&adxnnl=1&partner=hom epage&adxnnlx=1121957774-icsewdivdq0/T69rGe/FXQ
And this latest Economist.com article:
http://www.economist.com/agenda/displayStory.cfm?story_id=4199196
-----------
Greenmonkey.com.cn - Shanghai Business Portal Created by a Busy Expat Entrepreneur
* Greenmonkey is the only privately-owned business-related website listed by Economist.com in its guide to Shanghai city. |
_________________
Greenmonkey.com.cn
Last edited by busyexpat on Aug 13, 2005 - 05:12 AM; edited 5 times in total |
|
|
|
olesechka
Rocker
Joined: Nov 02, 2004
Posts: 782
Location: somewhere moving around
Status: Offline
|
| Posted:
July 22, 2005 - 01:19 AM |
|
|
Yeah, from what I heard it already effected Stock (Currency) Exchanges  Good. |
|
|
|
|
|
jobseeker1978
Squeeker
Joined: July 20, 2005
Posts: 12
Status: Offline
|
| Posted:
July 22, 2005 - 08:57 AM |
|
| Post subject: what a move!!! |
2% u must be kidding. It is like just to say loud HEY WE DID IT!!! |
|
|
|
|
|
mrperegrino
Barker
Joined: Apr 19, 2004
Posts: 139
Location: Shanghai- Pudong
Status: Offline
|
| Posted:
July 22, 2005 - 10:00 AM |
|
|
Ok... so now the RMB I have in the bank is worth more USD... great! But since I made it here, I still can't convert it to my US Bank account... it's stuck here!  (which means, I guess so am I...) Hmmm...I sense a method to the madness  |
|
|
|
|
itaye
Reacher
Joined: Oct 22, 2004
Posts: 265
Location: Shanghai
Status: Offline
|
| Posted:
July 22, 2005 - 02:08 PM |
|
|
I think its an important initial step. And I believe they will soon adjust the hk$ as weel, no watter what has been officially announced. |
|
|
|
|
|
izzy272
Lurker
Joined: July 12, 2005
Posts: 23
Status: Offline
|
| Posted:
July 22, 2005 - 03:00 PM |
|
|
Ok I am but a humble history professor and I must admit to knowing nothing of the worlds of international banking and finances. Can one of you who are in the know please explain to me and the others what this means in both the long and short term. Is there anything we should be doing our not doing?
Thanks |
_________________
you |
|
|
|
|
itaye
Reacher
Joined: Oct 22, 2004
Posts: 265
Location: Shanghai
Status: Offline
|
| Posted:
July 22, 2005 - 04:54 PM |
|
|
Short term - not much.
The 2,1% is nothing compared to what was required by many international authorities (incl US and EU) and what would probably be the rise if the rate would be controlled by the market - somebody talks about 50%
Long term - the RMBUSD exchange rate will be fixed every day by the Chinese Goverment instead of being stable (this is the real new) and it is expecte to rise, slowly but constantly.
Personal finance - I will behave accordingly, that means nothing urgent to do, but if I would have RMB to convert into UDS I would wait, I would not wait if I have to convert USD into RMB
This move has a more political (as the answer to the internation community pressure) then economical value as far, because as long as the rate will remain 8,11 there wil be not significant effect to the internationa economy. |
|
|
|
|
|
chunki
Barker
Joined: May 13, 2005
Posts: 139
Status: Offline
|
| Posted:
July 22, 2005 - 05:13 PM |
|
|
It's more of an adjustment in the exchange rate mechanism than an actual revaluation. They've switched from pegging the yuan to the US dollar to pegging it to a basket of currencies, which is a pretty sensible thing to do, given the structural weakness of the dollar. They seem to have just chucked in a slight appreciation of the currency as a token gesture.
By tampering with the exchange rate mechanism, they've raised expectations that they'll do it again, so you can probably expect even more speculative inflows into China as a result and I suppose this might even give the local property market a new lease of life. The currency markets are already showing expectations of a further appreciation within a year.
The US has been urging China to revalue its currency, but I can't imagine this move is going to appease them. It's not just that the revaluation is so tiny. The real issue is that the Chinese government has been keeping most of its foreign currency reserves in US treasury bonds, principally because the yuan was pegged to the dollar. With the yuan now pegged to a basket of currencies, the government will be more inclined to diversify into other types of treasury such as euro and yen.
China and Japan have essentially been bankrolling the US fiscal deficit, so any hint of a slackening of Chinese demand for US treasury is going to push up US interest rates, which could have all kinds of repercussions. I don't really understand why the US has been so keen to see China tamper with its exchange rate system, because it was always going to be a double-edged sword. I think they may live to regret that they've almost got what they asked for.
Tim
www.chunkichilli.com |
|
|
|
|
|
euroguy
Seeker
Joined: June 20, 2005
Posts: 41
Status: Offline
|
| Posted:
July 22, 2005 - 07:49 PM |
|
| Post subject: your opinions |
Guys/ Girls,
I am moving to China this weekend and I have some doubt about what to do based on the likelyhood of revaluation of the chinese currency.
I am paid in Euro and receive a housing and telefone allowance in RMB.
What do you suggest: should I take a lot euo's along and change them to RMB or will the efffect on middle long therm (6 months) be smaller than expected.
looking forward to expat's opinion on this issue! as well as chinese of course, allthough I think for them the revaluation is completely good news!!
regards,
tom |
|
|
|
|
|
euroguy
Seeker
Joined: June 20, 2005
Posts: 41
Status: Offline
|
| Posted:
July 22, 2005 - 09:53 PM |
|
|
Would have thought that the revaluation of the chinese currency and the foresighth of even a bigger revalution would be a hot topic on an expat forum??
Very strange, could someone explain me why??? |
|
|
|
|
|
olesechka
Rocker
Joined: Nov 02, 2004
Posts: 782
Location: somewhere moving around
Status: Offline
|
| Posted:
July 22, 2005 - 10:07 PM |
|
|
Sure, I can. It is Friday night here now here 
Be patient  |
|
|
|
|
|
euroguy
Seeker
Joined: June 20, 2005
Posts: 41
Status: Offline
|
| Posted:
July 22, 2005 - 10:11 PM |
|
|
that must be it, I am in the middle of moving and very hurried and stressed. Very selfish of me to disturb you on your friday night with such a serious issue:)
Enjoy, grab some beers, and worry about yuan next monday!
regards,
tom |
|
|
|
|
|
chunki
Barker
Joined: May 13, 2005
Posts: 139
Status: Offline
|
| Posted:
July 22, 2005 - 10:25 PM |
|
|
Hi euroguy,
If you want to change euro into yuan, I don't think you should carry cash with you. You should open a bank account and get the money transferred. I haven't checked for a while, but I think I'm still right in saying that you get a better exchange rate on foreign currency that's been transferred rather than brought in in cash.
I don't imagine there are many people who weren't caught off guard by what happened yesterday, so it would be a brave person who came out and told you when they reckoned the next revaluation was going to happen, or even if there was going to be one. I say you need to wait a while and see what kind of response there is to yesterday's changes.
Tim
www.chunkichilli.com |
_________________
Designer Knitwear at www.chunkichilli.com |
|
|
|
|
chunki
Barker
Joined: May 13, 2005
Posts: 139
Status: Offline
|
| Posted:
July 23, 2005 - 08:08 AM |
|
|
There's an interesting article in today's South China Morning Post, but I can't post it onto this site, for some reason. It says that China may eventually allow the yuan to float to its 0.3 percent daily limit, rather than just pegging it close to the middle of the daily trading range. In theory, that would mean that the currency could appreciate by as much as 75 percent to the dollar in a trading year, although they would obviously never allow that large a fluctuation.
The idea that China may allow the currency to appreciate gradually makes for an interesting theory, although I don't think there's anything concrete to suggest that the government's intentions on this are any different from what they were two days ago.
It's a shame I can't paste up the article. You have to be a subscriber to see it.
Tim
www.chunkichilli.com |
_________________
Designer Knitwear at www.chunkichilli.com |
|
|
|
|
chunki
Barker
Joined: May 13, 2005
Posts: 139
Status: Offline
|
| Posted:
July 24, 2005 - 06:07 AM |
|
|
Another interesting comment in today's SCMP. It's saying that China's move on the currency is likely to deliver an improvement in Sino-US relations, not so much because the currency has appreciated against the dollar, but because the US will be realising that China now has the power to buy less US treasury.
This from David Lundberg, from the School of International Studies at the University of South Australia:
"Look at who's controlling whose currency. Americans had better be polite. If China changes its policy and sells off the US currency, America will be in big trouble," he said. "China has a nice amount of leverage to play with if the US starts to play hardball in trade."
I seem to be the only one contributing to this thread at the moment, but I'm assuming people are interested because it's had a lot of clicks.
Tim
www.chunkichilli.com |
_________________
Designer Knitwear at www.chunkichilli.com |
|
|
|
|
olesechka
Rocker
Joined: Nov 02, 2004
Posts: 782
Location: somewhere moving around
Status: Offline
|
| Posted:
July 24, 2005 - 10:04 AM |
|
|
Yeah, many are reading, so keep it up |
|
|
|
|
|
busyexpat
Talker
Joined: May 20, 2005
Posts: 101
Location: Hong Kong
Status: Offline
|
| Posted:
July 25, 2005 - 03:58 AM |
|
|
Here's a few of my thoughts:
- Euroguy, unless you're in the George Soros type trade of moving massive amounts of money, I really don't think you're going to make a lot by simply moving your euros into rmb, then within six months converting back after further appreciation...I just think the transaction costs and associated risks are too high within your frame of reference.
- China's currency will never move 75% in a year. If the currency were to move like that, exporters in China would close, bank loans would not be repaid, banks would crash and there would be utter chaos. It won't happen.
- Asian regional currencies have all been appreciating rapidly in the last 1-2 years. Many currencies have appreciated 10-15%. Therefore, in order to erode this price competitiveness that China has gained in the last 1-2 years, the currency would have to rise above 10-15%...that would be when it would be even again...and then I think we could talk about China's exporters starting to feel more major effects. I really don't see that a 10% appreciation (but not too sharply, perhaps spread over a year) would disastrously affect China's exporters, because China's products are probably more than 10% price competitive than other country products.
- This topic has gotten a good bit of attention, but it seems that Shanghai real estate got more at the time that prices began to dip. It's a little strange when currency value has such a close relationship with real estate...I would have thought there should be more interest. |
_________________
Greenmonkey.com.cn |
|
|
|
|
chunki
Barker
Joined: May 13, 2005
Posts: 139
Status: Offline
|
| Posted:
July 25, 2005 - 04:34 AM |
|
|
JP Morgan is forecasting that the yuan will rise a cumulative 7 per cent by the end of the year, to trade at 7.8 yuan against the US dollar. The bank forecasts a further 8 per cent appreciation next year.
Tim
www.chunkichilli.com |
_________________
Designer Knitwear at www.chunkichilli.com |
|
|
|
|
chunki
Barker
Joined: May 13, 2005
Posts: 139
Status: Offline
|
| Posted:
July 25, 2005 - 05:51 AM |
|
|
I was going to say that the thing to watch out for is the day when the yuan first goes out of its trading band. Then it occured to me that it's going to be a bit difficult to be sure when that's happened.
Although the 0.3 percent limit is called a "daily trading limit", it's actually worked in the past as a permanently fixed band that the currency never went out of. For the moment, that probably still hasn't changed. But as soon as the currency goes out of that band, you'll know that the government is either widening the band or it's ready to allow the yuan to drift a bit against the basket of currencies. The problem, of course, is that they haven't revealed what's in the basket, so unless you've got a PhD in mathematical modelling, you're never really going to be sure if the yuan's in its band or out of it.
Tim
www.chunkichilli.com |
_________________
Designer Knitwear at www.chunkichilli.com |
|
|
|
|
itaye
Reacher
Joined: Oct 22, 2004
Posts: 265
Location: Shanghai
Status: Offline
|
| Posted:
July 25, 2005 - 08:08 AM |
|
|
Thanks Chunki for you comments, very valuable information.
Any comment about HK$? |
|
|
|
|
|
chunki
Barker
Joined: May 13, 2005
Posts: 139
Status: Offline
|
| Posted:
July 26, 2005 - 05:51 AM |
|
|
Hi itaye,
I'm not that keyed up about the Hong Kong economy, but I guess my feeling is that Hong Kong is a very different case and it doesn't really make a lot of sense for them to tamper with the exchange rate system without a really good reason.
Hong Kong is a currency board system, which is a bit different from China's managed float. It means that the Hong Kong dollar is effectively the US dollar in a different denomination. Every Hong Kong dollar in circulation is backed by US dollars in Hong Kong's foreign currency reserves, at a rate of 7.something HK$ for every one US$. They only issue new Hong Kong dollars when new US dollars enter the reserves. It's a much more sophisticated system and it's worked pretty well for 20 years or something.
Because Hong Kong is small and does not have full sovereignty, it makes sense for the HK$ to piggyback on a larger currency in this way. I guess the generally accepted view is that they'll eventually unhitch the HK$ from the US dollar and hitch it to the yuan (with a view to the eventual merger of the HK$ and the yuan), but the yuan is nowhere near ready for that yet.
At the time of the Asian Financial Crisis and during the recent slump in Hong Kong property prices, there was some speculation that they might be forced to abandon the dollar peg, but that was basically because they were in crisis and there were questions about whether the Hong Kong government could weather the political pressure from disgruntled property owners. But there doesn't seem to be the same kind of imperative at the moment.
If they tried to compensate for a weak US dollar by simply repegging the HK$ at a different value to the dollar, that could fatally damage the credibility of the currency board system. So the risks are high. On the other hand, since the yuan is now linked to a basket of currencies, I suppose there might be some logic in saying that they should do the same with the HK$. But I imagine it's pretty much technically impossible to operate a currency board system with a basket of currencies. So that would also mean reinventing their whole monetary system from scratch, even though the repercussions from this could easily outweigh the benefits.
So I don't think there's a really compelling motive to tamper with the HK$ at the moment. I'm guessing that the only thing that might push them in that direction would be a shocking rise in US dollar interest rates, which would automatically push HK$ interest rates higher as well. The ending of the yuan's peg to the US$ has already pushed up HK$ and US$ interest rates, and I suppose it could again get to the point where Hong Kong property prices are in a slump and the Hong Kongers are out marching on the streets. In that case, there'd be a stronger chance that they'd do something about the dollar peg. But I don't really know enough about Hong Kong, or about the state of the US economy, to tell you if there's a chance of it getting to that point. Maybe someone else out there can tell you.
Tim
www.chunkichilli.com |
|
|
|
|
|
chunki
Barker
Joined: May 13, 2005
Posts: 139
Status: Offline
|
| Posted:
July 26, 2005 - 06:06 AM |
|
|
Ah! the South China Morning Post is quoting a source today saying they're already committed to letting the currency drift a bit over the longer term.
Tim
www.chunkichilli.com
Tuesday, July 26, 2005
Twin strategy to keep yuan in check
CARY HUANG in Beijing
Two strategies will be adopted to keep the value of the yuan under control, a source close to the government has revealed.
The People's Bank of China central bank will intervene in the foreign exchange market on a daily basis to keep the value within its desired range. But in the longer term it will rely on a mechanism linked to key economic indicators.
The source said the mechanism would allow the bank to limit fluctuations in the currency's value and ensure that adjustments to its value complemented changes in the domestic economy.
It is understood that components of the mechanism include data on the mainland's exports and trade balance, the capital account, the profitability and employment levels of exporters, and the effects of exchange-rate adjustments on the job market, inflation and gross domestic product growth.
Zhao Xijun , of the finance and securities research institute at Renmin University, said the central bank would give priority to two sets of indicators. The first - at the macroeconomic level - concerned trade, the capital account, employment and GDP growth.
The second set of indicators - at the microeconomic level - dealt with the performance and profitability of Chinese banks and export-oriented enterprises.
"The performance of the export businesses would be the most important factor that decision makers will take into account because the sector contributed 40 per cent of the 9.5 per cent growth in GDP in the first half of this year," he said.
Another factor that would need watching would be the success of the central government's campaign to boost domestic demand in order to remove structural imbalances in the economy.
Professor Zhao said the government would not allow the yuan to appreciate dramatically, which would adversely affect exports and foreign direct investment, because domestic demand was too weak. He said a controlled adjustment of the yuan in tight ranges could win time for Chinese enterprises to adjust to global challenges.
The People's Bank of China announced on Thursday that the yuan would be floated against a basket of foreign currencies instead of being pegged to the US dollar, resulting in a virtual revaluation to a rate of 8.11 to the greenback.
The revaluation rate, initially 2.1 per cent, was well short of the more than 10 per cent revaluation that the US and other western nations had been seeking to rein in their increasing trade deficits with mainland.
The yuan closed at 8.1097 against the US dollar yesterday.
The source said that under the mechanism, the central bank would take time to study economic data before allowing the yuan to further appreciate.
The government would likely take longer to make seasonal adjustments to monthly figures as a result, the source said.
The mechanism would also allow the central bank to contain speculative hot money and reduce excessive fluctuations in the exchange rate. |
|
|
|
|
|
chunki
Barker
Joined: May 13, 2005
Posts: 139
Status: Offline
|
| Posted:
July 26, 2005 - 06:37 AM |
|
|
The SCMP also has this snappy little quote from Stephen Roach, chief economist at Morgan Stanley:
"By moving to a currency basket, China will need to diversify its enormous portfolio of foreign exchange reserves," wrote Morgan Stanley chief economist Stephen Roach in a research note sent to clients after the revaluation. That could lead to a wholesale flight from dollar assets, warned Mr Roach, "a precipitous decline in the dollar, a spike in US interest rates, a collapse in the US property market, a severe adjustment by the American consumer, and a sharp global recession".
Better run for the hills, then!
Tim
www.chunkichilli.com |
_________________
Designer Knitwear at www.chunkichilli.com |
|
|
|
|
peterpaul
Barker
Joined: Jan 27, 2004
Posts: 169
Status: Offline
|
| Posted:
July 26, 2005 - 09:42 AM |
|
|
Yeah but old Mr. Roach has been screaming the end is nigh for the last year (at least).
Given the nature of the the US's current account defecit, its dearth of lower middle class jobs (hopeful debt peons spend more), eroding middle class structure (hopefull wage slaves spend more), and economy increasingly dependent on a likely housing bubble, he may be on to something. However, these eductated men of Letters (phd, mba, lol) cannot predict when it will happen, only how it might happen... |
|
|
|
|
|
rutuman
Low Seater
Joined: June 21, 2005
Posts: 3231
Status: Offline
|
| Posted:
July 27, 2005 - 05:22 AM |
|
|
So do i withdraw the trust fund, that could see a de-mutualising pay-out and hog it all into RMB or not?
also there is a very cheap website i saw on telegraph money
only about 0.1% all transactions. i mean nearly ALL. would that include currency transactions to china? i know it included currency transactions. |
|
|
|
|
|
|
|
| |
|
|
Forum FAQ
Search
Preferences
Watched Topics
Log in to check your private messages
Log in
