Archive for category Currency China (汇率解析)
US Dollar, as the world anchor currency, has started to lose its value since 2007 against most other currencies. The central Bank of USA, FED, seems not hesitant at all to continue to boom the economy and monetize the federal debt through more money printing. So what is the implication of FED’s policy on the value of USD? What is the outlook of USD in 2011? Wu Zhijian offers his view on Lianhe Zaobao.
In the past 10 years, most world’s active currencies have appreciated against RMB with a notable exception of USD. For example, BRL has appreciated against RMB for almost 100% in the past decade, followed by AUD (80%), INR (50%) and KRW (50%). Read the rest of this entry »
Back in mid June, PBOC announced to de-peg RMB from USD. Since then, RMB did appreciate about 1% by early August but then reverted back near to the prior de-peg level. In summary in the last 2 months, RMB has almost not moved at all against USD.
Does it mean that the so called de-peg is a fake from PBOC? Or is PBOC waiting for a better time to take more aggressive action? My view is that we are likely to see RMB to make bolder move against USD in the next few months.
I have a few observations to support my opinion.
First, Chinese government is sending messages to the public in support of a more flexible exchange rate regime. This message is well reflected from a series of public announcements made by the Deputy Governor of PBOC, Ms Hu Xiaolian. Ms Hu has published five speeches recently to convey the message that Chinese authority has always supported a managed floating exchange rate regime, Read the rest of this entry »
I have pointed out in a previous post that it is a mind blower to trade RMB on the NDF market. If you think that RMB is a free lunch on the table for investors to bet on the seemingly one way direction, well the market likes you as a guest. During the past week RMB surprised most trades by coming off from its recent high and returned most gains that she has gained in the past month. So where is the complaint and pressure from US congressmen? And where is the IMF or World Bank report claiming a 30% RMB undervaluation? Nowadays almost any renowned economist will tell you that RMB is undervalued and it is to China’s benefit to let RMB appreciate. The benefits could go on a long list such as increased purchasing power of Chinese consumers, global rebalancing between trading partners, less reliance on export oriented growth and political Read the rest of this entry »
Since the announcement from PBOC to de-peg RMB from USD, the market has been excited about the movement of RMB. In fact, since June 18 when the announcement was made, RMB has appreciated a whopping 0.87% from 6.83 to 6.77 during a Read the rest of this entry »
China’s manufacturers, especially the low value added ones, are struggling on the brink of survival and bankruptcy. According to a latest study, the low value added industry lives on an average gross profit margin of less than 4%. Read the rest of this entry »
The ongoing Greek debt crisis seems remotely linked to China’s economy. People would be surprised to see any serious contagion of Greek debt crisis to China’s banking sector. On the other hand, the argument goes that the Greek debt Read the rest of this entry »
Nouriel Roubini is a professor of economics at the Stern School of Business, New York University and chairman of Roubini Global Economics, an economic consultancy firm. The New York Times labeled him “Dr. Doom”, whereas, in hindsight, IMF economist Prakash Loungani has called him “a prophet”.
Doctor Roubini wrote on Forbes as of April 1, 2010 (Read Article here) that China is likely to be labeled as ‘currency manipulator’ by USA. According to Dr. Roubini, ‘There is no doubt that China is manipulating its currency…it looks like a duck and acts like a duck – it is clearly a Peking duck’.
To be fair, I tend to agree with Doctor Doom that China’s FX policy shows a sign of manipulation in the last 12 months by ‘soft pegging’ the RMB to USD. It would be difficult to argue that a ‘fixed FX policy’ is not ‘manipulation’. Ironically, the pegging per se is a double edged sword. For example, by pegging RMB to USD, the trade weighted exchange rate of RMB actually appreciated significantly during Q4 ’08 and Q1 ’09 following a resurgence of USD (See Graph from Chinatells). Therefore the rate change of RMB is not a purely ‘manipulated’ one way move. By appreciating and then depreciating together along with USD, the net effect is limited change with much lower volatility, which is quite helpful to the importers and exporters (Read Article from Chinatells). Read the rest of this entry »
According to the deputy head of China’s National Development and Reform Commission, Mr. Zhang Xiaoqiang, there is a potential of huge amount of hot money to be channeled into China in 2010 in the expectation that RMB will be revalued (See Article from Business Week). With the world’s fastest growing rate in GDP, China continues to be the top investment destination for investors around the world. China’s stock market and property market had an impressive run with huge volatility in 2009, and it seems that the interests from global investors are only elevated in the coming new year.
A lot of theories have been advocated to explain and predict China’s currency regulation. Out of so many various opinions, one hypothesis is particularly interesting. According to Albert Keidel, the former deputy director for the Office of East Asia Nations at the US Department of Treasury, the reason why China government seemed to have ‘re-pegged’ RMB to USD is that the basket policy has indicated to DEPRECIATE RMB (See Article from WSJ). As a matter of fact, China government has announced to peg the valuation of RMB to a basket of currency since 2007. Starting from then, RMB has appreciated against USD gradually according to the guidance of ‘basket value’. In Oct 08, however, situation started to change. USD appreciated sharply during then due to global capital’s desire to fly to safety (See Graph from Chinatells). Under that scenario, RMB should depreciate against USD based on the guidance from ‘basket policy’. However, due to political reasons, China government is aware that any depreciation of RMB against USD is likely to cause explosive reaction from Washington. Therefore as a result China government chose to keep RMB’s rate unchanged, which appears to be pegged to USD. Based on such logic, RMB is likely to be revalued according to the ‘basket guidance’ when USD continues to be depreciated to around $1.6 against EUR. Read the rest of this entry »
In the last six months the foreign exchange policy of China has been on the headlines of most international newspapers. On one hand there is a lot of international pressure calling China government to reconsider its FX policy to peg the RMB to USD. On the other hand China government continues to state a firm stand that FX policy is a domestic only issue, which will not be affected by foreign impact.
Before we make a judgment call on whether RMB should be revalued, it is probably advisable to go through the main arguments to push China government to change the FX policy first. Such a review shall give us some hindsight before we form an opinion.
To summarize, following are the main points from economists and journalist to argue for a revaluation of RMB: Read the rest of this entry »
Yes, it is RMB, again and always. For economists and journalists all over the world, RMB policy is increasingly becoming an icon to be challenged and defeated. A recent article from Economist is one of such challengers. Unfortunately, the arguments from that article are not necessarily robust and convincing enough. Here goes the argument: 1) RMB should be revalued as RMB has depreciated 14% in the last 10 months. This argument can be defeated easily by looking at a currency chart for the last 18 months (See Graph from Chinatells). In fact, with a close look at the movement of world currency in the last 18 months, a peg policy to USD probably wins as it provides stability and predicatability, which is good news for corporates involved in international trade; 2) RMB shall be revalued to address the global ‘imbalance’. Another cliche, but even more unsounding than the first argument. In fact, the world economy has never been in a ‘balanced’ status and it would be a mistake to bark on the wrong tree to try to establish any causality between RMB policy and global imbalance (See Article from Chinatells). Read the rest of this entry »
It is never easy to find out the truth, including the proper value of RMB. During the last 6 months, most currencies of emerging economies have appreciated against USD except RMB. Such a fact has aroused international pressure from China’s trading partners pushing China government to reconsider the pegging policy of RMB to USD (See Article from Chinatells). Read the rest of this entry »
As the biggest creditor of USA, China plays a significant role in influencing the policy of Washington. However, China’s huge reserve in USD and US Treasury is also vulnerable to any meaningful move from US government’s fixcal policy and the move of other major creditors (See Graph from Chinatells). How China government deals with this dilemma is the main challenge in the near future (See Article from WSJ). Looking back into the history, GIC countries used to face a similar difficult situation. During the 1970s when oil crisis happened twice during that period, gulf countries went through a few strategies to defend their reserve in USD. First the oil producers propose to price the oil in alternative currencies; second OPEC countries let the oil price go up in part to compensate the value loss in USD, and last some OPEC members did shift the reserve from USD to others. It seems that some of the strategies that China government is using now is similar to the above. It takes time to review and judge whether China’s strategy will be successful in preserving the value of their reserve and in the meanwhile push Washington to be serious about Dollar’s value. Read the rest of this entry »
During President Obama’s visit to Beijing, one of top priority topics that he discussed with President Hu Jingtao is the exchange rate of RMB. Due to the fact that RMB is pegged to USD, so claims Obama, it is artificially under valued and does not reflect the true Purchasing Power Parity. Such an under valuation is one of the major causes for a global imbalance: China accumulates huge surplus and USA accumulates huge deficit. In fact, according to the latest figure from National Bureau of Statistics, China’s trade surplus reached 24 Billion USD in October 09, which is a fifth month of consecutive increase y-o-y in its trade surplus (See Graph below). Therefore, to address such an imbalance, so goes the logic, China government need to revalue RMB or loosen the peg. Read the rest of this entry »
The world is feeling the impact of Chinese, especially rich ones fully loaded with hard Cash (See Article from WSJ). Starting from Q2 of 2009, significant volume of mainland cash finds its way into nearby more open cities such as Hong Kong and Macau, pushing up the price of local property (See Article from chinatells). It is against the will of Beijing as there are regualtions to limit the capital outflow. However, there are countless ways to bypass such regulations and it is literally impossible to stop the flow. On the other hand, it reflects the need of Chinese rich to find an international city with first class infrastructure and decent education and healthcare system. Hong Kong ticks the boxes on the list and becomes one of the hot spot.
It is not a secret that China government wants to push the internationalization process of RMB and change the USD dominated world trade. It is easier said than done. However, there are material steps being taken through Hong Kong, which serves as a bridge between China and international community (See Article from Fortune). As Hong Kong Dollar is freely convertible to world currencies, it is a perfect channel for RMB to go through a progressive journey for afloatation in the end. Read the rest of this entry »
Sometimes if we view the same thing from different perspectives, we arrive at totally opposite conclusions. The exchange rate of RMB is suh an example. Read the rest of this entry »
During Obama’s visit to Beijing, one of top priority topic that he will discuss with President Hu Jingtao is the exchange rate of RMB (See Article from WSJ). Due to the fact that RMB is pegged to USD, so claims Obama, it is artificially under valued and does not reflect the true PPP. Such an under valuation is one of the major causes for a global imbalance: China accumulates huge surplus and USA accumulates huge deficit (See Graph from Chinatells). To address such an imbalance, therefore, China government need to revalue RMB or loosen the peg. The counter argument from China government, however, is that how US can demand China to revalue its currency while US themselves are letting the USD slide in a free fall? It seems very unfair that US government is applying double standard to its own currency and someone else’s currency. I think it is a valid point from China government. Read the rest of this entry »
During President Obama’s visit to China in this week, currency is bound to be a central topic. It is not only about RMB, but also about USD. Just hours before Obama landed in Shanghai, the chairman of China Banking Regulation Commission Mr. Liu Mingkang already spoke to public and criticizing America’s weak dollar policy in flooding the world with speculative capitals (See Article from WSJ). I believe such a gesture is a warm up for the talk between China and US on currency. The exchange rate of RMB has recently attracted media spot lights particularly in the west (See Article from Chinatells). Apparently Obama is going to raise this issue to President Hu Jingtao during the Beijing meeting. Instead of waiting US to attack on RMB, China government is well prepared and could counter the attack by raising the issue of the value of USD. After all, if US government continues to let USD slide, there is no point for RMB to budge unilaterally. I forsee that a compromise shall be reached between Beijing and Washington on the value preservation of USD and progressive appreciation of RMB.
China’s Foreign Reserve tops the world’s central banks by a far margin. According to the latest stats in 2009, China holds a total of 2273 Billion USD of foreign reserve, which is more than double of that of Japan, the second largest foreign reserve holder. Read the rest of this entry »
China’s Trade surplus reached 24 Billion USD in Oct, making the total trade surplus from Jan to Oct reach 159.5 Billion USD. Based on such trend, a pro-rata annual trade surplus could be as much as 192 Billion, which is shy from that of 07 and 08 (See Graph from Chinatells), but still higher than 2006. Read the rest of this entry »
Is it all about RMB? Or, it is all about RMB, fool! It seems to make a lot of sense if we link the happenings recently in a chronicle way. The logic goes like this: There is a huge imbalance in world economy and trade, notably the dramatic trade surplus from China and trade deficit from USA. One of the top mandate of Obama administration is to address this imbalance, by bringing down the account surplus of China and account deficit of America. One of the key measures to make it happen, seems to lie in the exchange rate of RMB, according to some academics and media from the West (See article from NYT). It seems, however, that China government is resisting such a change. By continually sticking to the argument that RMB exchange rate is purely internal, China government refuses to appreciate RMB, which is estimated to be 20% undervalued at least. American government is not in a position to enforce the revaluation of RMB, however, what they can do, is to loosen their own monetary policy and flood the market with cheap money. Under such a scenario, international speculators and investors borrow USD cheaply and pour the hot capital into China with an appreciation expectation. Read the rest of this entry »
The debate on whether RMB shall appreciate to address the imbalance in global economy is getting attentions not only from industry but also from academy. A recent voice is from Mr. Lin Yifu, the first Chinese economist of World Bank. (See article from WSJ). According to Mr. Lin Yifu, the appreciation of RMB won’t help in re-balancing the world economy or walking the main economy out of recession. Such a comment is in sharp contrast to some of the views from Western Media and other economists (See Article from Chinatells). Based on the opinions from the opposite camp, the under valuation of RMB is the culprit of the current global economy imbalance and the rebalance won’t return until Yuan is revalued.