China scraps yuan peg to US dollar

[Dermot]

I’m thinking here that the Cat has just got among the Pigeons …….

Interesting times ahead……..I hope the big buyers from China have hedged there currency…..

Rgs

Dermot

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Source: http://www.rte.ie/business/2005/0721/china.html

China scraps yuan peg to US dollar

July 21, 2005 13:15
China scrapped the yuan's peg to the US dollar today and tied it to a basket of currencies, the central bank said, the first steps in highly anticipated reforms aimed at letting the currency float freely.

The new yuan rate versus the dollar revalues the currency by 2.1%, to 8.11 per US dollar, the central bank said on its website.

Under the previous policy, the yuan was kept near 8.28 per dollar, a virtual peg that had led the US and other countries to complain that China's currency was unfairly undervalued.


The changes came amid intense speculation that Beijing would overhaul its currency regime, which had been basically unchanged since the 1997/98 Asia crisis.

The European Central Bank declined to comment today on the annoucement by China's central bank. 'Our comment is no comment,' an ECB spokeswoman said.

In the past, ECB officials have called for an upward re-evaluation of the Chinese yuan and a more flexible exchange rate regime.

[MEH]

2.1%

Methinks they are playing games with Congress.

[Dermot]

Games I don’t think……

This is possible the biggest position taken on currency since the end of WW11 by any country in the World, congress has little to do with it if anything…….this is about World positioning of currencies …..Oh an eventually how much you pay for something……

[ 07-21-2005, 10:49 AM: Message edited by: Dermot ]

[MEH]

Congress has everything to do with it. They are debating a bill that would put a 25% tariff on Chinese goods. That tariff is intended to counteract the currency "manipulation" China employs.

With the rate of growth China's economy has there's no way 2.1% is an accurate readjustment. Ergo it's a ruse to get Congress off their backs.

Bush tried to deep-six the tariff bill and was stunned when he lost 66-34. That's a veto-proof number. Senate leaders agreed a six month or so period to see if China would move on their own.

What's going to be interesting is to see if Congress falls for the trick. Word on the street is that they would have been bought off by a 10% revaluation.

White House is, as expected, hailing this humbug as some sort of major breakthrough.

2006 elections are going to be very interesting.

Edit: I just read that the Hong Kong dollar is still being pegged to the US dollar. Didn't even know it still existed. It means the 2.1% revaluation is really less than that. Chuck Schumer, co-author of the tariff bill, says it's a baby step in the right direction, but some bigger steps need to come or nothing has changed.

[ 07-21-2005, 01:28 PM: Message edited by: MEH ]

[OzDave]

Australia floated it currency back in 1984. It has taken over 20 years to get back to where it was (against the US dollar)in 1984.

The big question will be when the Yuan is floated and the cheap imports will flood the markets. I believe we are in for rocky time ahead, especially if you compete against chinese products. It may even start a whole new business of sending the art over to China to have it framed and then sending it back within two weeks.

[Alan Sturgess]

There are dozens of companies that I personally know of or have visited in China who actually receive pallet loads of images printed in North America or Europe and frame the product and ship it back to the respective print owners as finished product. This has been going on in China for a number of years, but is starting to take off now. One of the biggest expenses in the transaction is the freight back due to the relatively light weight of framed prints compared to their dollar value. The landed costs still put the finished product well below what it can be manufactured for in the Western world.

I see this service as taking over the finished framed print market for businesses who can wait 90 to 120 days for their product and have the ability to order full container quantities of shipments. Many factories will not take you on unless you can guarantee them two or three containers per month.

Alan

[MEH]

OzDave, it's a bit different with the Yuan. China has artificially held its currency down so that it can suck the life blood out of the USA. (Polemic I know, but accurate IMHO).

Floating the Yuan means Chinese goods should get more expensive not cheaper.

If the Chinese allow the Yuan to truly float and it goes up by a significant amount then the solids will hit the air circulating device both here and there.

That's why I think it's a ruse to head off Congress.

[Dermot]

China yuan move 'not a first step'

July 26, 2005 07:29

China's central bank has insisted that a revaluation of its currency against the dollar is not the first in a coming series of incremental steps to the yuan's value.

'Some foreign media have misunderstood the content of the foreign exchange reform, with some even thinking that the 2.1% is just an initial adjustment,' it said in a statement on its website.

It said that the decision to revalue, substantially below market expectations and the 10% sought by the US Treasury, was based on China's trade surplus and 'structural adjustments'.


The statement appeared aimed at cooling already building speculation that China would have to make another move soon, which in the near team will heighten the flood of 'hot money' or speculative capital racing into the country.

Source: http://www.rte.ie/business/2005/0726/china.html