China leans toward yuan float

Market Watch ^ | 03/17/10 | Zhang Huanyu, Huo Kan & Yu Hairong

[TigerLikesRooster]

March 17, 2010, 8:42 p.m. EDT

China leans toward yuan float

Professors and policymakers alike agree on need for new forex reforms

By Zhang Huanyu, Huo Kan & Yu Hairong, Caixin Online

BEIJING (Caixin Online) -- The Chinese government's yuan exchange-rate policy is at another critical juncture. Several quasi-government and independent research organizations have held closed-door discussions since the beginning of the year to discuss exchange-rate mechanisms, and they've submitted policy suggestions to the central bank and government policy makers.

What's next? All signs indicate that China is about to resume exchange-rate reforms, a process suspended in July 2008 at the start of the international financial crisis.

During a press conference March 6, People's Bank of China Deputy Gov. Su Ning said the central bank would decide when to exit its "special exchange-rate mechanisms" and set a schedule according to economic situations.

"Exit" has already been interpreted by the market as a sign that the central bank will let the yuan appreciate. Rumors have been widely circulating in the market that there will soon be a one-off appreciation of the yuan by 2% to 3%.

"Some Chinese financial institutions have already started unloading U.S. dollars," said a high-level financial industry executive based in Hong Kong.

[TigerLikesRooster]

P!

[tbw2]

If the yuan floats, does that cause inflation in the United States?

[bigbob]

No, in fact it may cause prices to go up, because as the dollar-rmb peg is gradually removed, China-made products will no longer be as cheap. The key word is “gradual”, since the Chinese leadership know this is a slippery slope for them, and the good news is, they are at least finally in agreement that it must be done.

Let me recommend this guys blog to anyone who is interested in US-China economics:

http://mpettis.com/2010/03/how-will-an-rmb-revaluation-affect-china-the-us-and-the-world/

He is a professor at a Chinese university who does a very nice job of explaining these economic changes in language anyone can understand. This is a long posting but I think if you take the time to read through it, you will find it quite informative.

[Macrinus]

A yuan float is a delicious Chinese fountain drink. . . but I prefer ginger ice cream for dessert.

[randomhero97]

bump for later read

[misterrob]

Very lengthy but good read

http://globaleconomicanalysis.blogspot.com/2010/03/pressure-increasing-on-china-to-revalue.html

[C19fan]

One effect is China’s Central Bank no longer needs to buy US dollars to kepp the Yuan undervalued. There goes a nmajor purchaser of US treasuries. In a sense, China is like Visa sending you a letter saying your line has been frozen.

[artaxerces]

China’s PPP GDP is 9 Trillion USD

China’s Nominal GDP is only 5 Trillion USD.

Due to currency peg to the Dollar, the Yuan is considered to be about 30-50 percent below it’s actual market value.

So if the Chinese were to let their currency float tomorrow, China’s nominal GDP would rise to about 7 Trillion USD per year immediately.

[FreedomPoster]

Doesn’t that assume that they would continue to sell us and others stuff at the same rate, were that to happen? Clearly that would not be the case. That’s the same as Dems thinking that purchasing of goods won’t change despite a tax increase.

[artaxerces]

That’s exactly the point. IF they let their currency fully float, then Chinese goods would automatically become 30% more expensive, which means that lower-end Industries would shift away from China to even lower wage countries in South Asia or Africa.

But in reality, they would have to slowly float their currency regardless of what we do. China’s problem is that it’s running out of people with a basic high school education willing to work for $10 a day.

China is still 7-10 years behind the U.S in terms of cutting-edge technology. China needs to fully float it’s currency, but it’s trying to avoid doings until it achieves rough technological parity with the U.S and EU.