Apr 13, 2010

Yuan Revaluation: When, How, How much

The won rose five times as fast as China’s currency in the 12 months after officials in Beijing last relaxed the foreign- exchange regime in July 2005, data compiled by Bloomberg show. Singapore’s dollar climbed three times as much, the rupiah five times and Malaysia’s ringgit twice as fast.
Chinese government has kept the yuan at 6.83 per dollar for the past 21 months to shield exporters from the global recession and a slump in world trade. The country allowed the yuan to appreciate 21 percent in the three years before that.
It gained 1.4 percent versus the dollar in the year following the July 2005 revaluation. By comparison, Singapore’s dollar surged 4.3 percent, the rupiah 7 percent, the won 7.4 percent and Malaysia’s ringgit 3.3 percent, Bloomberg data show.
Possibility that the trading band may be widened to between 0.75 percent and 3 percent either side of the central bank’s daily reference rate.
The yuan was revalued by 2.1 percent on July 21, 2005, after China ended the decade-long peg to the dollar and introduced a “managed float” against a basket of currencies.
Foreign-exchange reserves rose to $2.45 trillion in March, the world’s largest holdings, as the central bank sold its own currency to maintain an almost two-year-old peg. China may also want to get rid of this ever increasing dollar hoard in terms of foreign exchange reserves due to its almost two year old-peg.
Yuan’s appreciation will reduce its soaring import bill.
The largest and first trade deficit in last six years which was whopping USD 7.24 billion. The last trade deficit came in April 2004 which was 2.26 billion. According to Officials trade with Taiwal, Korea and Japan prompted this deficit while for EU and USA the balance of payments remain surplus. It is expected that if in very near future China is going to appreciate that it would not do gradually in phase but at one-off manner.  
The Chinese Premier clearly stated that they would nor act on any external pressure for its forex policy.
Posted on Tuesday, April 13, 2010 | Categories:

Update on Greece Crisis

           The Greece Debt problem has a bit of breather for now at least if not for all. On April 11 the European governments offered debt-plagued Greece a rescue package worth as much as 45 billion euros ($61 billion) at below-market interest rates in a bid to stem its fiscal crisis and restore confidence in the euro. The borrowing costs in Greek surged to 11-year high recently. The package includes 30 billion euros in three-year loans in 2010 at around 5 percent. Another 15 billion euros would come from the IMF.
Euro region officials have spent the past two months debating whether to maneuver around the rules of the Maastricht Treaty, which left the bloc without a common finance ministry to match its shared central bank. The treaty also contains a “no bailout clause,” making it harder for governments to agree on fiscal transfers for euro members facing fiscal crises.
The 16-nation currency euro declined 5 percent this year against major currency dollar. This was mainly due to the largest ever budget deficit of the EU till date. The debt prices (bond) of Greece also declined resulting into yields shooting to 11 year high to 7.51 percent last week.
Investor confidence in Greece will be tested today when it offers a combined 1.2 billion euros of 26- and 52-week bills. So far Greece, whose deficit was 12.9 percent of gross domestic product last year, says it won’t need to trigger the package.
Experts say others of the PIGS i.e. Portugal, Italy, Spain are less serious than Greece. Although the sentimental effect could be exaggerative.
Posted on Tuesday, April 13, 2010 | Categories: