|
Tingkai
|
|
To find the Northwest Passage
Aug 2001
time: 13:29
|
|
quote:
Originally posted by DanS
Tinkai: All of what you say seems true. However, am I right in saying that the perceived value of the Yuan does have an impact on money flows? If it is perceived that the Yuan will revalue higher, then hot money attempts to flow into China.
This speculative hot money adds directly to China's money supply, since basically the gov't is printing a set number of Yuan when they "buy" a dollar. China's money supply grows. China's reserves grow. The Yuan appears to be further undervalued. The trade surplus grows. Then the cycle begins again.
Isn't what China lost or will lose in this equation is the ability to set money supply, if they don't revalue periodically? A massive amount of money flowing into or out of the system will--sooner or later--cause either an overheated economy or an illiquid economy. If China really tamps down hard on fx transactions, that will cause chaos in the business community. And that's when companies may go to alternatives to the BoC to set a truer market price. |
Like Davout said, speculation isn't an issue because of the currency controls, but you might be right.
Here's an interesting article about what you mentioned.
http://sg.biz.yahoo.com/030728/15/3cw3c.html
Almost every dollar that enters China is exchanged into about 8.3 yuan. These new yuan are a potential ingredient in inflation, and whether they get into the economy is critical to the issue of overheating.
The way China is choosing to handle the new yuan currently bucks conventional economics. To keep the yuan exchange rate unchanged, the central bank issues short-term debt instruments to buy back the new yuan from banks, which keeps banks from pumping it into the economy and kindling inflation.
The situation wasn't much of a problem until prices started to rise, since deflation made any rate of interest worthwhile. But now, prices are picking up - in conjunction with a huge upsurge in foreign trade and investment during the past year that has sent U.S. dollars hurling into China at unprecedented speed.
These factors together suggest the central bank should lift the rates it pays on the bills used to mop up the yuan or let the currency rise. But it isn't complying.
Foreign economists don't doubt the conundrum on interest and exchange rates exists for China too. But they argue China makes hash of the theory since use of the yuan is governed by rules. It isn't fully convertible like the Hong Kong dollar.
In effect, China has a third lever: rule changes.
If Beijing were to permit normalized exchange in the yuan, more exit strategies for foreign investors, foreign investment for Chinese companies in a qualified domestic institutional investor program or a more wide-open import regime, some inflationary pressure could be offset by the reduction in net U.S. dollar intake. A number of such steps already have been taken, and more were outlined Friday in Hong Kong with plans to allow more Chinese to travel overseas, and buy foreign currency for their travels.
|
04-08-2003 18:39
|