Reports from a number of
authoritative sources, including the Wall Street Journal and Bloomberg, seem to
indicate that last week’s effective sharp devaluation of the Chinese currency,
the Renmimby, abbreviated as RMB (literally “The people’s currency”, and denominated
in Yuan, which contain 10 Jiao and 100 Fen), was not a cynical exercise on the
part of Chinese authorities to assist exports, but rather the outcome of a
responsible move to begin to make the currency a freely floating one on the
world’s Forex markets.
The problem is that the Chinese have
form in market intervention, so the suspicion that the move was an attempt to
manipulate is not an unreasonable one. And it is also, it appears, not without
cost. The WSJ reports that many Chinese companies were motivated by ultra-low
interest rates abroad, in the wake of the global financial crisis, to obtain
large loans in US dollars, Euros and Yen. These borrowers, who must convert
their Yuan revenues in order to repay the loans, are now facing significant
foreign exchange losses. They are not all exporters.
IMF
is supportive of China move
The International Monetary Fund (IMF)
has announced that it welcomes the new Chinese approach to monetary policy.
Markus Rodlauer, the IMF mission chief for China, is reported as saying that “As
China integrates more and more into the global financial system, it will be
increasingly important for China to have a freely floating exchange rate”. The
IMF also believes that the Yuan is not, even now, undervalued.
However, the IMF wants this process
to be accelerated. It also wants Beijing to reverse recent interventionist
steps it took after Chinese stock markets fell sharply. This drop was no more
than the bursting of a bubble, and still left Chinese stock market indexes up
for the year. The government has suspended IPOs, caused state agencies to buy
shares and blocked large institutions from selling stock holdings in order to
support in particular the Shanghai Composite Index.
No comments:
Post a Comment