LexisNexis(TM) Academic - Document
Copyright 2005 The Financial Times Limited
Financial Times (London, England)
July 22, 2005 Friday
London Edition 1
SECTION: LEX COLUMN; Pg. 20
LENGTH: 295 words
HEADLINE: Renminimal THE LEX COLUMN:
BODY:
China likes to do things its own way. After resisting pressure to revalue the renminbi for so long, Beijing has moved sooner than even John Snow, the US Treasury secretary, expected.
This week's strong Chinese growth data also provide a convenient domestic fig leaf.
The initial upward adjustment against the dollar is a modest 2.1 per cent. But China has also moved to a "managed floating" regime based on an unspecified basket of currencies. The exchange rate will be "more flexible based on market conditions". The pace at which China will allow the renminbi to revalue is unknown, but it appears safe to expect further gains.
This should pave the way for further Asian currency appreciation as the region shares in the burden of dollar adjustment. Malaysia immediately followed China's move to a managed float and the yen's swift gains against the dollar appear logical. The euro, too, initially appreciated, but the picture is less clear cut. Interest rate and growth differentials, which have underpinned the greenback in recent months, continue to offer support. Moving to a currency basket implies diversification of China's exchange reserves towards the euro and Asian currencies. While this should influence fresh reserve accumulation, the degree to which China will sell existing dollar holdings is unclear. In general the news is dollar-negative, but buying the yen versus the euro may be the safer bet.
The prospect that China may need to recycle fewer dollars pushed US Treasury yields higher. But the three-month average of net official purchases of US securities has already been in a downward trend for the last year. Recycling of reserves is just one factor influencing US long-term rates. The renminbi puzzle has been solved but the bond conundrum remains.
LOAD-DATE: July 21, 2005
Financial Times (London, England)
July 22, 2005 Friday
London Edition 1
SECTION: LEX COLUMN; Pg. 20
LENGTH: 295 words
HEADLINE: Renminimal THE LEX COLUMN:
BODY:
China likes to do things its own way. After resisting pressure to revalue the renminbi for so long, Beijing has moved sooner than even John Snow, the US Treasury secretary, expected.
This week's strong Chinese growth data also provide a convenient domestic fig leaf.
The initial upward adjustment against the dollar is a modest 2.1 per cent. But China has also moved to a "managed floating" regime based on an unspecified basket of currencies. The exchange rate will be "more flexible based on market conditions". The pace at which China will allow the renminbi to revalue is unknown, but it appears safe to expect further gains.
This should pave the way for further Asian currency appreciation as the region shares in the burden of dollar adjustment. Malaysia immediately followed China's move to a managed float and the yen's swift gains against the dollar appear logical. The euro, too, initially appreciated, but the picture is less clear cut. Interest rate and growth differentials, which have underpinned the greenback in recent months, continue to offer support. Moving to a currency basket implies diversification of China's exchange reserves towards the euro and Asian currencies. While this should influence fresh reserve accumulation, the degree to which China will sell existing dollar holdings is unclear. In general the news is dollar-negative, but buying the yen versus the euro may be the safer bet.
The prospect that China may need to recycle fewer dollars pushed US Treasury yields higher. But the three-month average of net official purchases of US securities has already been in a downward trend for the last year. Recycling of reserves is just one factor influencing US long-term rates. The renminbi puzzle has been solved but the bond conundrum remains.
LOAD-DATE: July 21, 2005
posted by Eastlaw at Saturday, July 23, 2005
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