China may speed up reform of currency regime

Financial Times ^ | 04/24/05 | Geoff Dyer

[TigerLikesRooster]

http://news.ft.com/cms/s/6be39ecc-b4c9-11d9-8df4-00000e2511c8.html

China may speed up reform of currency regime
By Geoff Dyer in Boao, Hainan
Published: April 24 2005 15:03 | Last updated: April 24 2005 15:03

China could accelerate its plan to reform its controversial currency regime because of mounting international pressure, the head of the country’s central bank admitted at the weekend.

Zhou Xiaochuan, governor of the People’s Bank of China, said that the government was still working on the “sequencing” of a potential policy change, but acknowledged that encouragement from abroad could result in a quicker decision.

“If there is more pressure from outside, it may force us to speed up our reform,” said Mr Zhou, speaking at the Boao Forum for Asia on Hainan, an island in southern China.

He added: “I always think that pressure is not a bad thing. It is often a driving force that pushes you to do your work better.”

The pressure on China to let its currency rise against the US dollar has increased over the last week, after the US and several other members of the G7 called for China to take immediate action on its foreign exchange policy.

The US Congress and the European Union are also examining possible tariffs or other restrictions on Chinese imports.

Although China has fixed is currency at around Rmb8.3 to the dollar for over a decade, the government has indicated for some time that it was preparing a shift in policy. However, China’s sharply rising exports and foreign exchange reserves have prompted growing accusations that the currency is significantly undervalued.

Mr Zhou stressed that there was no timetable yet for a change in policy. “We have a very clear target in this regard, but we have our own sequence,” he said. “We are doing some preparation, for example the reform of the financial sector, to enlarge the role of the foreign-exchange market.”

Another leading Chinese official speaking at the weekend conference said investors should not expect a large appreciation in the currency.

“You can’t expect the renminbi to appreciate by 10 per cent tomorrow. It would be disastrous for China as well as to other countries,” said Wei Benhua, deputy chief of the State Administration of Foreign Exchange, China’s foreign exchange regulator.

“If we adjust a little bit it will not contribute a great deal to reducing the trade deficit with the US,” he added.

Wei also said that the government had not decided on a timetable for changing policy. “We will positively but prudently accelerate the process of reform of the renminbi exchange rate regime step by step and the timing will be well chosen,” he said.esper Koll, economi

[TigerLikesRooster]

Ping!

[struggle]

Go ahead, change your currency. Then watch inflation blow up prices, real estate prices go astronomical, bank loans don't get paid, and the system sizzles and dies.

China waited too long for this.

[libs_kma]

They'll stall for decades if we let them. Slap some tarriffs on them that increase over time, but starting now is better because they've had the advantage for way too long as it is.

Right now they don't have any monetary incentives to do more than talk about it. And thats all they'll do unless we do more than talk about it.

[pganini]

"Go ahead, change your currency. Then watch inflation blow up prices, real estate prices go astronomical, bank loans don't get paid, and the system sizzles and dies."

Do you know anything about economics??? China is facing an inflation problem BECAUSE it didn't raise its currency. If it does, imports are CHEAPER (lower prices) and that includes OIL.

Is rising 20% going to hurt them? Sure, but it ain't much. The "next big threat" economically are the car manufacturers, and a car technician in china makes $2 per hour and rising 20% in currency isn't going to help it much at all.

What is significant is that people who bought all those US treasuries at 8.25 RMB to 1 dollar will SELL before the currency floats (otherwise they only get 6-7 RMB back). So the effect of this would be selling of US treasuries, which will drive US dollars lower and will increase interest rates in the US and abroad. Given that most US realestate are at a bubbling point (see Florida + California prices), there is a real risk of a realestate crash in the US.

[struggle]

>>>Do you know anything about economics??? China is facing an inflation problem BECAUSE it didn't raise its currency. If it does, imports are CHEAPER (lower prices) and that includes OIL.

No, I don't know anything about economics. But I do know that the yuan is undervalued by 30-40%. The weak Chinese banking system cannot absorb a currency inflation like that. Furthermore, any treasury shift will be offset by trade deficit shift.