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Copyright 2005 The Financial Times Limited
Financial Times (London, England)
July 22, 2005 Friday
London Edition 3
SECTION: FRONT PAGE - FIRST SECTION; Pg. 1
LENGTH: 444 words
HEADLINE: China revalues renminbi and replaces currency peg with more flexible system
BYLINE: By EDWARD ALDEN, ANDREW BALLS, JOHN BURTON and RICHARD MCGREGOR
DATELINE: BEIJING , WASHINGTON and SINGAPORE
BODY:
China has bowed to intense foreign pressure and growing domestic economic imbalances by replacing its decade-old currency peg to the US dollar with a more flexible exchange rate system that will be tightly managed by the central bank.
The People's Bank of China, the central bank, announced a 2.1 per cent revaluation yesterday and the details of a system that will allow the renminbi to fluctuate by 0.3 per cent up or down, in daily trading. The PBoC said the exchange rate would be kept "basically stable" and set with reference to a basket of unspeci-fied currencies.
The decision is a victory for the administration of George W. Bush, US president, which had urged Beijing to revalue but also fended off congressional demands for trade sanctions if China refused to move. While the PBoC's statement was not completely clear, the US Treasury said it expected China to allow the renmimbi to rise against the dollar by 0.3 per cent a day, with the closing price becoming the opening price the next day. John Snow, Treasury secretary, said the mechanism provided significant amplitude for the currency to move.
The International Monetary Fund called for maximum currency flexibility under the new system, saying it would allow Beijing to run a more independent economic policy. Jean-Claude Trichet, president of the European Central Bank, welcomed the move as contributing to world financial stability.
Although the revaluation had been widely expected, the timing took financial markets by surprise. The dollar tumbled against the yen in heavy volumes as traders judged the Japanese government would now tolerate a stronger currency. Other Asian currencies were also heavily traded as investors bet that several countries in the region would be forced to let their currencies strengthen against the dollar. So far only Malaysia has followed China's lead.
The Chinese central bank said its aim was to "promote basic equilibrium of the balance of payments and safeguard macro-economic and financial stability".
With China's trade surplus rising sharply and its foreign exchange reserves reaching a record Dollars 711bn (Pounds 406bn) last month, the ambition of equilibrium in the balance of payments also suggested yesterday's revaluation would not be the last.
Analysts said the revaluation, although small, and the introduction of more currency flexibility, would help boost consumption in China and take the steam out of rapidly growing exports. Renminbi revaluation, Pages 10-11 Editorial Comment, Page 18 Size matters, Page 19 Lex, Page 20 The Short View, Page 21 Capital Markets, Page 43 Investors' double jolt, Page 44 Background and analysis, www.ft.com/renminbi
LOAD-DATE: July 21, 2005
Financial Times (London, England)
July 22, 2005 Friday
London Edition 3
SECTION: FRONT PAGE - FIRST SECTION; Pg. 1
LENGTH: 444 words
HEADLINE: China revalues renminbi and replaces currency peg with more flexible system
BYLINE: By EDWARD ALDEN, ANDREW BALLS, JOHN BURTON and RICHARD MCGREGOR
DATELINE: BEIJING , WASHINGTON and SINGAPORE
BODY:
China has bowed to intense foreign pressure and growing domestic economic imbalances by replacing its decade-old currency peg to the US dollar with a more flexible exchange rate system that will be tightly managed by the central bank.
The People's Bank of China, the central bank, announced a 2.1 per cent revaluation yesterday and the details of a system that will allow the renminbi to fluctuate by 0.3 per cent up or down, in daily trading. The PBoC said the exchange rate would be kept "basically stable" and set with reference to a basket of unspeci-fied currencies.
The decision is a victory for the administration of George W. Bush, US president, which had urged Beijing to revalue but also fended off congressional demands for trade sanctions if China refused to move. While the PBoC's statement was not completely clear, the US Treasury said it expected China to allow the renmimbi to rise against the dollar by 0.3 per cent a day, with the closing price becoming the opening price the next day. John Snow, Treasury secretary, said the mechanism provided significant amplitude for the currency to move.
The International Monetary Fund called for maximum currency flexibility under the new system, saying it would allow Beijing to run a more independent economic policy. Jean-Claude Trichet, president of the European Central Bank, welcomed the move as contributing to world financial stability.
Although the revaluation had been widely expected, the timing took financial markets by surprise. The dollar tumbled against the yen in heavy volumes as traders judged the Japanese government would now tolerate a stronger currency. Other Asian currencies were also heavily traded as investors bet that several countries in the region would be forced to let their currencies strengthen against the dollar. So far only Malaysia has followed China's lead.
The Chinese central bank said its aim was to "promote basic equilibrium of the balance of payments and safeguard macro-economic and financial stability".
With China's trade surplus rising sharply and its foreign exchange reserves reaching a record Dollars 711bn (Pounds 406bn) last month, the ambition of equilibrium in the balance of payments also suggested yesterday's revaluation would not be the last.
Analysts said the revaluation, although small, and the introduction of more currency flexibility, would help boost consumption in China and take the steam out of rapidly growing exports. Renminbi revaluation, Pages 10-11 Editorial Comment, Page 18 Size matters, Page 19 Lex, Page 20 The Short View, Page 21 Capital Markets, Page 43 Investors' double jolt, Page 44 Background and analysis, www.ft.com/renminbi
LOAD-DATE: July 21, 2005
posted by Eastlaw at Saturday, July 23, 2005
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