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China expected to revalue currency

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1 China expected to revalue currency on Mon Apr 05, 2010 7:52 am

littlekracker


China expected to revalue currency


Updated April 5, 2010 19:40:51

There's rising expectations China will move to revalue its currency after Washington decided to hold off a report which could have seen Beijing branded a nation that manipulated its exchange rate for trade purposes. The gesture by US policymakers is seen as giving China more time to strength the yuan by itself, something it's consistently refused to do.

Presenter: Scott Alle
Speakers: US Treasury secretary Timothy Geithner; Chris Leung, an economist with DBS bank in Hong Kong



ALLE: The prospects of China revaluing its currency, have, say experts, significantly increased over the past few days. The reason for that. A decision by the US Treasury over the weekend to delay a report which could have singled-out Beijing as a currency manipulator which in turn would have further heightened tensions over what is also a highly sensitive political issue. US Treasury secretary Timothy Geithner was sounding confident the Chinese will now react to the US's more concilitary tone.

GEITHNER: It's very important China move. We're going to try to maximise the chances they move quickly. And again but our strategy should be designed to increase the odds China should do what's in their own interests which to let their currency move up again.

ALLE:Even prior to the report backdown, many economists like Chris Leung at DBS bank in Hong Kong were predicting Chinese authorities would allow the yuan to appreciate from its current rate of 6.83 to the dollar, where it's been held since September 2008.

LEUNG: The pressure definitely is there. And on the other hand I think increasingly it is in the interests if China to improve the flexibility of the exchange rate system. I think the window of opportunity is anywhere between April, mid-April to mid-October I guess in May or June we may at least see China widen the rtrading band of gains maybe against a basket of currencies.

ALLE: According to the World Bank it could help rebalance the world's third biggest economy, reduce inflationary pressures and take the heat out of a growing price asset bubble in the property sector. But a revaluation would also eat away at China's cost advantage in global trade,devalue the country's foreign currency holdings, and some experts warn, adversely affect growth. Chris Leung Senior Economist at DBS Bank says while the purchasing power of Chinese citizens would be greater there's no guarantee their spending will go into the domestic economy.

LEUNG: A stronger currency actually encourages them to spend this money offshore not onshore. And a stronger renimbi will probably reduce exports.

ALLE: But an erosion of China's export competitiveness is exactly what a group of US lawmakers is seeking, with new legislation containing penalties and tariffs aimed at stopping the flood or relatively cheap Chinese goods, which they claim is causing a wave of factory closures in the US. Certainly Treasury Secretary Tim Geithner is well aware of pressure from American manufacturers to take action on the currency issue.

GEITHNER: What we want to do is make sure China is growing they're buying more from America, more of their growth comes from domestic consumption less from exports, and US firms are able to compete on a level playing field in China> That's going to guide our interests with China as China understands and China expects.

ALLE: There's no word from Washington on when the delayed currency blacklist of nations which manipulate their exchange rates will come out. A compromise could be a widening of the yuan's daily trading band, and that come as soon as this month, if China chooses to signal its intentions on the issue.

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