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Copyright 2005 The Financial Times Limited
Financial Times (London, England)
July 22, 2005 Friday
London Edition 1
SECTION: RENMINBI REVALUATION; Pg. 11
LENGTH: 569 words
HEADLINE: Currency reform seen as question of sovereignty FOREIGN PRESSURE
BYLINE: By MURE DICKIE
DATELINE: BEIJING
BODY:
China's currency policymakers have long been torn between the need for foreign exchange flexibility to respond to global market realities and the deep desire for control that is a hallmark of Communist economic planners.
Over the past decade, however, the conflicting impulses of the Beijing officials running a "socialist market economy" have become an issue of much more than mere domestic concern.
Since the Asian financial crisis of 1997, China's emerging economic clout has made the country the focus of international currency concerns, and foreign pressures have reached extraordinary heights over the past year.
Famous international economists have waxed polemical about China's policy options. Notables such as Alan Greenspan, the US Federal Reserve chairman, have called for greater exchange flexibility and US congressmen have demanded the revaluation of the renminbi, threatening import tariffs.
Beijing has not always welcomed the global attention, however. In May, Wen Jiabao, Chinese premier, told a group of US businessmen that pressure from foreigners was not helpful. "Reform of the renminbi's exchange rate is a matter of China's own sovereignty," Mr Wen said.
Chinese officials have been keen to point out that the message from overseas has changed dramatically in recent years.
Before 1997, Beijing had been seeking to introduce more flexibility into the renminbi's managed floating rate against the US dollar. But as other Asian currencies nose-dived during the financial crisis, China found itself cast in the role of bulwark of stability, drawing praise from around the world for using its capital controls to hold the renminbi tightly within a trading band near Rmb8.28 to the US dollar.
The decision to hold up the rate hurt Chinese exports but won warm praise from the US and around the region. "China's good economic performance, and in particular its decision not to devalue the renminbi, has helped contain the impact of the crisis and contributed to the region's economic recovery," Goh Chok Tong, prime minister of Singapore, said in 1999.
Years later Beijing remains cautious. Yesterday's 2.1 per cent revaluation was far less than many pundits had forecast and was a tiny step compared with China's last big currency shift in January 1994. Then, China unified its dual exchange system of maintaining an official rate and a more market-oriented swap centre rate - effectively devaluing the renminbi by more than 30 per cent.
The move meant the end of the practice of forcing visiting foreigners to use special Foreign Exchange Certificates (FECs) rather than ordinary currency. It also caused a sharp fall in the business of China's army of black market currency traders, whose ranks included colourfully dressed women who patrolled southern beaches offering tourists the chance to "changey FEC".
But while such black market trading underlined the gap between currency policy and market forces, 1994 did not mark the first time that Beijing had bowed to economic reality.
In scrapping a peg to the dollar that had become unhelpfully rigid, China's economic planners have introduced new flexibility. But the small print of yesterday's move made it clear it will use its new basket of currencies only as a reference for future moves.
Armed with tight capital controls and more than Dollars 700bn (Euros 583bn, Pounds 405bn) in foreign exchange reserves, Beijing is still determined to stay in control.
LOAD-DATE: July 21, 2005
Financial Times (London, England)
July 22, 2005 Friday
London Edition 1
SECTION: RENMINBI REVALUATION; Pg. 11
LENGTH: 569 words
HEADLINE: Currency reform seen as question of sovereignty FOREIGN PRESSURE
BYLINE: By MURE DICKIE
DATELINE: BEIJING
BODY:
China's currency policymakers have long been torn between the need for foreign exchange flexibility to respond to global market realities and the deep desire for control that is a hallmark of Communist economic planners.
Over the past decade, however, the conflicting impulses of the Beijing officials running a "socialist market economy" have become an issue of much more than mere domestic concern.
Since the Asian financial crisis of 1997, China's emerging economic clout has made the country the focus of international currency concerns, and foreign pressures have reached extraordinary heights over the past year.
Famous international economists have waxed polemical about China's policy options. Notables such as Alan Greenspan, the US Federal Reserve chairman, have called for greater exchange flexibility and US congressmen have demanded the revaluation of the renminbi, threatening import tariffs.
Beijing has not always welcomed the global attention, however. In May, Wen Jiabao, Chinese premier, told a group of US businessmen that pressure from foreigners was not helpful. "Reform of the renminbi's exchange rate is a matter of China's own sovereignty," Mr Wen said.
Chinese officials have been keen to point out that the message from overseas has changed dramatically in recent years.
Before 1997, Beijing had been seeking to introduce more flexibility into the renminbi's managed floating rate against the US dollar. But as other Asian currencies nose-dived during the financial crisis, China found itself cast in the role of bulwark of stability, drawing praise from around the world for using its capital controls to hold the renminbi tightly within a trading band near Rmb8.28 to the US dollar.
The decision to hold up the rate hurt Chinese exports but won warm praise from the US and around the region. "China's good economic performance, and in particular its decision not to devalue the renminbi, has helped contain the impact of the crisis and contributed to the region's economic recovery," Goh Chok Tong, prime minister of Singapore, said in 1999.
Years later Beijing remains cautious. Yesterday's 2.1 per cent revaluation was far less than many pundits had forecast and was a tiny step compared with China's last big currency shift in January 1994. Then, China unified its dual exchange system of maintaining an official rate and a more market-oriented swap centre rate - effectively devaluing the renminbi by more than 30 per cent.
The move meant the end of the practice of forcing visiting foreigners to use special Foreign Exchange Certificates (FECs) rather than ordinary currency. It also caused a sharp fall in the business of China's army of black market currency traders, whose ranks included colourfully dressed women who patrolled southern beaches offering tourists the chance to "changey FEC".
But while such black market trading underlined the gap between currency policy and market forces, 1994 did not mark the first time that Beijing had bowed to economic reality.
In scrapping a peg to the dollar that had become unhelpfully rigid, China's economic planners have introduced new flexibility. But the small print of yesterday's move made it clear it will use its new basket of currencies only as a reference for future moves.
Armed with tight capital controls and more than Dollars 700bn (Euros 583bn, Pounds 405bn) in foreign exchange reserves, Beijing is still determined to stay in control.
LOAD-DATE: July 21, 2005
posted by Eastlaw at Saturday, July 23, 2005
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