Posted on 06/19/2010 11:13:36 AM PDT by the invisib1e hand
China’s currency, the renminbi (RMB), or yuan, has been held about 6.83 per dollar since July 2008 after the government allowed a 21 percent appreciation over the prior three years.
Further Reform the RMB Exchange Rate Regime and Enhance the RMB Exchange Rate Flexibility
In view of the recent economic situation and financial market developments at home and abroad, and the balance of payments (BOP) situation in China, the People’s Bank of China has decided to proceed further with reform of the RMB exchange rate regime and to enhance the RMB exchange rate flexibility.
Starting from July 21, 2005, China has moved into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. Since then, the reform of the RMB exchange rate regime has been making steady progress, producing the anticipated results and playing a positive role.
When the current round of international financial crisis was at its worst, the exchange rate of a number of sovereign currencies to the U.S. dollar depreciated by varying margins. The stability of the RMB exchange rate has played an important role in mitigating the crisis’ impact, contributing significantly to Asian and global recovery, and demonstrating China’s efforts in promoting global rebalancing.
The global economy is gradually recovering. The recovery and upturn of the Chinese economy has become more solid with the enhanced economic stability. It is desirable to proceed further with reform of the RMB exchange rate regime and increase the RMB exchange rate flexibility.
In further proceeding with reform of the RMB exchange rate regime, continued emphasis would be placed to reflecting market supply and demand with reference to a basket of currencies. The exchange rate floating bands will remain the same as previously announced in the inter-bank foreign exchange market.
China’s external trade is steadily becoming more balanced. The ratio of current account surplus to GDP, after a notable reduction in 2009, has been declining since the beginning of 2010. With the BOP account moving closer to equilibrium, the basis for large-scale appreciation of the RMB exchange rate does not exist. The People’s Bank of China will further enable market to play a fundamental role in resource allocation, promote a more balanced BOP account, maintain the RMB exchange rate basically stable at an adaptive and equilibrium level, and achieve the macroeconomic and financial stability in China.
The People’s Bank of China will further enable market to play a fundamental role in resource allocation, promote a more balanced BOP account, maintain the RMB exchange rate basically stable at an adaptive and equilibrium level, and achieve the macroeconomic and financial stability in China.
It's like Fed-watching, only you have to read it sideways.
OK, somebody sort that one out. Are they going to increae the value of the RMB or put it on a floating exchange rate like other currencies?
both.
or rather, “both, again.”
chart: US Dollar Index.
Exactly. It “floats” right now, but is limited to a narrow range of values. The RMB will probably gain 15% again versus the USD, over the next 18-24 months, allowed to slowly float/drift up to that level, then locked down to a small range like it is now.
This is all code for “no devaluation unless forced”.
And the US ain’t got much that’s gonna force ‘em.
I’m not clear on your statement. Of course the Chinese are not going to devalue their currency. They need to allow it to float UP in value to reflect the new reality of the US dollar, which is headed the way of Zimbabwe. That would make US imports cheaper and help American manufacturers, but cost millions of restive young Chinese workers their jobs, so China ain’t going to do it. They seem determined to follow us to into the toilet, which for us means that cheap plastic crap at China-Mart will stay cheap, but unemployment will stay high.
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