Yuan 10% One-off Gain a ‘Good Strategy,’ Zhang Says (Update3)
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By Bloomberg News
Jan. 6 (Bloomberg) -- China should consider a one-time appreciation in the yuan of 10 percent against the dollar to reduce inflows of speculative capital, a researcher at the Chinese Academy of Social Sciences said.
The revaluation could be followed by a cap of 3 percent in annual moves up or down for the currency against the greenback, Zhang Bin, a research fellow at the Institute of World Economics and Politics at CASS, said in an interview from Beijing today. He said he couldn’t predict whether his proposal, outlined in an essay published today, would be adopted by the government.
China may see “huge” inflows of so-called hot money as foreign investors step up bets on yuan gains, Zhang Xiaoqiang, deputy head of the National Development and Reform Commission, said in a statement yesterday. The government has rebuffed calls from U.S. and European officials to allow the market to set the exchange rate and has pegged the yuan at about 6.83 per dollar since July 2008 to help exporters weather a global recession.
“It’s a good strategy to protect China from the impact of short-term capital inflows,” said Zhang at CASS. “Now is a very good time. Foreign pressure will intensify this year and China should take an active strategy.”
An official at the central bank’s press office declined to comment on Zhang Bin’s proposal, and asked not to be identified. CASS is a government-backed research body that advises the State Council, or cabinet.
Export Growth
Twelve-month non-deliverable yuan forwards rose 0.1 percent to 6.6430 per dollar as of 6:04 p.m. in Hong Kong, indicating traders are betting on a 2.8 percent appreciation in a year. In the spot market, the yuan was little changed at 6.8275, according to China Foreign Exchange Trade System.
The last time the currency was allowed to appreciate in July 2005, it strengthened 21 percent in the three years. Forwards are agreements to buy and sell assets at current prices for delivery at a specified time and date. Non-deliverable contracts are settled in dollars.
Premier Wen Jiabao said on Dec. 27 China will “absolutely not” yield to international calls after U.S. President Barack Obama and European officials pressed China to renew yuan appreciation to help prevent trade imbalances. The central bank pledged today to keep the yuan “basically stable” in 2010, restoring a phrase it had omitted from a quarterly report in November.
A 10 percent revaluation would have limited impact on exports and slow growth in overseas sales by 3.3 percent, said Zhang. Exports dropped 1.2 percent in November from a year earlier, following a 13.8 percent decline the previous month. China’s customs bureau is scheduled to report trade figures for December sometime between Jan. 12 and 14.
Zhang, who has been interviewed by Xinhua News Agency on global economics previously, said the revaluation should be adopted soon.
“The earlier, the better,” said Zhang. “We shouldn’t wait until after foreign capital flows into China and expectations on yuan gains increase.”
For Related News and Information: Top currency news: TOP FRX News on China’s currency: TNI CHINA FRX BN Stories on China economy: TNI CHINA ECO BN
Last Updated: January 6, 2010 05:08 EST
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Bloomberg News
Jan. 6 (Bloomberg) -- China should consider a one-time appreciation in the yuan of 10 percent against the dollar to reduce inflows of speculative capital, a researcher at the Chinese Academy of Social Sciences said.
The revaluation could be followed by a cap of 3 percent in annual moves up or down for the currency against the greenback, Zhang Bin, a research fellow at the Institute of World Economics and Politics at CASS, said in an interview from Beijing today. He said he couldn’t predict whether his proposal, outlined in an essay published today, would be adopted by the government.
China may see “huge” inflows of so-called hot money as foreign investors step up bets on yuan gains, Zhang Xiaoqiang, deputy head of the National Development and Reform Commission, said in a statement yesterday. The government has rebuffed calls from U.S. and European officials to allow the market to set the exchange rate and has pegged the yuan at about 6.83 per dollar since July 2008 to help exporters weather a global recession.
“It’s a good strategy to protect China from the impact of short-term capital inflows,” said Zhang at CASS. “Now is a very good time. Foreign pressure will intensify this year and China should take an active strategy.”
An official at the central bank’s press office declined to comment on Zhang Bin’s proposal, and asked not to be identified. CASS is a government-backed research body that advises the State Council, or cabinet.
Export Growth
Twelve-month non-deliverable yuan forwards rose 0.1 percent to 6.6430 per dollar as of 6:04 p.m. in Hong Kong, indicating traders are betting on a 2.8 percent appreciation in a year. In the spot market, the yuan was little changed at 6.8275, according to China Foreign Exchange Trade System.
The last time the currency was allowed to appreciate in July 2005, it strengthened 21 percent in the three years. Forwards are agreements to buy and sell assets at current prices for delivery at a specified time and date. Non-deliverable contracts are settled in dollars.
Premier Wen Jiabao said on Dec. 27 China will “absolutely not” yield to international calls after U.S. President Barack Obama and European officials pressed China to renew yuan appreciation to help prevent trade imbalances. The central bank pledged today to keep the yuan “basically stable” in 2010, restoring a phrase it had omitted from a quarterly report in November.
A 10 percent revaluation would have limited impact on exports and slow growth in overseas sales by 3.3 percent, said Zhang. Exports dropped 1.2 percent in November from a year earlier, following a 13.8 percent decline the previous month. China’s customs bureau is scheduled to report trade figures for December sometime between Jan. 12 and 14.
Zhang, who has been interviewed by Xinhua News Agency on global economics previously, said the revaluation should be adopted soon.
“The earlier, the better,” said Zhang. “We shouldn’t wait until after foreign capital flows into China and expectations on yuan gains increase.”
For Related News and Information: Top currency news: TOP FRX
Last Updated: January 6, 2010 05:08 EST
