[DRB]

http://www.msnbc.msn.com/id/8654171/

BEIJING - China scrapped the yuan’s peg to the U.S. dollar on Thursday and tied it to a basket of currencies, the nation’s central bank said, the first steps in highly anticipated reforms aimed at letting the currency float freely.

The yuan currency has been strengthened, effective immediately, to a rate of 8.11 to the U.S. dollar — compared to the 8.28 it has been set at for more than a decade. The new trading regime will begin Friday, the government said in an announcement on state television.

SNIP

The yuan will now be allowed to trade in a tight 0.3 percent band against a basket of foreign currencies, the government said. It didn’t say which currencies.

It said the central bank would announce the yuan’s closing price each day, and that rate would be the midpoint of the next day’s trading band.

This isn't exactly what the world wanted. The Chinese will still be able to control the yuan as they still set the rate.

 

[Changleen]

Slowly slowly catchee monkey.

 

[Changleen]

Here you go:

Q&A: China revalues its currency

China has abandoned its currency's peg to the dollar and revalued the yuan by 2.2%. It now buys more US dollars than before.

With China both one of the world's largest exporters of manufactured goods and one of the largest importers of raw materials, the move's economic impact will be felt worldwide.

Why has China revalued its currency?

China's currency has been fixed at 8.28 yuan to the US dollar for 10 years.

But since China joined the World Trade Organization it has come under increasing pressure to break that link.

The US, in particular, has been worried that China's cheap currency gives it an unfair advantage as it sells its goods to Western consumers.

Already China has built up a huge trade surplus with the rest of the world, and appears to be able to make things more cheaply than its developing country rivals.

China may have been influenced by the fact that it is hosting the world trade talks in December, and did not want talk of its huge trade surpluses to dominate the discussion.

What difference will it make to China?

China's exports will become more expensive as a result of the increased value of its currency.

This might slow the rate of growth of its exports, which are the main engine of China's impressive economic growth.

A slowdown in economic growth could have serious social consequences in China if it led to higher unemployment.

But the relatively small size of the revaluation means it is unlikely to have a huge immediate economic effect.

How will it affect the rest of the world?

Both developing countries and industrial countries will breathe a small sigh of relief if China's export-led growth slows a little.

Developing countries will hope that they will be able to produce more industrial goods like clothing that they can export to Western markets.

And industrialised countries are likely to face less pressure for protectionism from both workers and manufacturers who the competition of Chinese exporters.

This is particularly important in the USA, where political pressure was mounting to do something about and against China.

Most recently this was symbolised by the opposition to a Chinese oil company buying its US-based rival Unocal.

Western consumers, however, may be hurting.

Inflation has been low across much of the Western world, not least because steadily falling prices for consumers goods 'Made in China' helped to keep prices down.

And Western companies that have invested heavily in China may have to adjust their business plans to take account of the new development - although many have done so already.

Are there more revaluations to come?

China has said it will link its currency to a basket of currencies, not just to the dollar, so there could be more changes ahead.

But the Chinese authorities will be careful not to move too quickly on revaluation as this could destabilise both exports and the huge inward investments made by Western firms.

In the long-run, as China focuses less on export-led growth and more on supplying the needs of its own consumers, the government will benefit as the lower prices for imports will help keep inflation in check.

What are the dangers of the move?

China resisted devaluing its currency during the Asian financial crisis of 1997-98, and this provided a key element of stability that contained the crisis after most other Asian developing countries were forced off fixed rates.

And if it has a floating currency this could make China more vulnerable to future financial crises.

However, China is protected by having huge currency reserves of $750bn (£400bn), built up by its years of trade surpluses.

But many of these are in US Treasury bonds, which will become less valuable to China after its revaluation.

So China may start to switch from holding dollars to holding other types of currency, for example the euro, which could lead to a sharp fall in the value of the dollar.

It could also make it more difficult (or expensive) for the US government to finance its massive budget deficit.

 

[DRB]

Again the only thing that changed is that they did a slight reveluation. Otherwise, they still control what the yuan is worth NOT the market. They have not said what the make up of the group of currencies will be. Nor how exactly the value will be determined.

It changes nothing except increase the profit taking on their exports as they didn't raise the value enough to make anyone stop buying their products.

The "FAQ" that got posted was developed if the Chinese had released the value of the yuan to the market. Someone just came back and gave it a slight edit. Most of the points are really invalid based on the nature of the change.

 

[Changleen]

Again the only thing that changed is that they did a slight reveluation. Otherwise, they still control what the yuan is worth NOT the market. They have not said what the make up of the group of currencies will be. Nor how exactly the value will be determined.

It changes nothing except increase the profit taking on their exports as they didn't raise the value enough to make anyone stop buying their products.

The "FAQ" that got posted was developed if the Chinese had released the value of the yuan to the market. Someone just came back and gave it a slight edit. Most of the points are really invalid based on the nature of the change.

Yeah, a 2.2% initial revaluation. They're going to allow it to trade normally within a narrow range for now. Fair enough really, you can't exactly just go from a legacy of fixed rates like that to free floating over night. It'd be disasterous for their economy.

I don't get what you mean about the FAQ??

 

[DRB]

Yeah, a 2.2% initial revaluation. They're going to allow it to trade normally within a narrow range for now. Fair enough really, you can't exactly just go from a legacy of fixed rates like that to free floating over night. It'd be disasterous for their economy.

I don't get what you mean about the FAQ??

No you misinterpret what they are going to do. Everyday the Chinese will announce what the yuan is worth not the market. AND it will only trade within a very tight range. Conservative estimates figure that yuan might be undervalued by as much as 20%.

The FAQ was developed IF the Chinese had released their currency BUT that's not what happened so they edited to be more appropriate to what actually happened.

Certainly an overnight release would have been silly BUT announcing plans for the long term conversion wouldn't have been. However, that's not what the Chinese want to do. This is a publicity move in face of the economic talks to take place in China in October. IF they hadn't done something the talks would have centered around the value of the yuan and nothing else.

I'd call it a drop in the bucket but its not even that.

 

[Changleen]

No you misinterpret what they are going to do. Everyday the Chinese will announce what the yuan is worth not the market. AND it will only trade within a very tight range. Conservative estimates figure that yuan might be undervalued by as much as 20%.

The FAQ was developed IF the Chinese had released their currency BUT that's not what happened so they edited to be more appropriate to what actually happened.

Certainly an overnight release would have been silly BUT announcing plans for the long term conversion wouldn't have been. However, that's not what the Chinese want to do. This is a publicity move in face of the economic talks to take place in China in October. IF they hadn't done something the talks would have centered around the value of the yuan and nothing else.

I'd call it a drop in the bucket but its not even that.

You can't expect huge changes overnight from an economy that size. It's utterly unrealistic. China has over a billion people to provide for. China commited a long time ago to eventually change the lock on it's rates, and made it clear at the time it may take a long time and it would do so at it's convenience. When does any country, let alone America or 'Old Europe' even demand any less in such a position? China has now made a start. America and the West have been noisy about this for a while. A PR victory. A 2.2% revaluation in your favour (Think what this actually means when you consider the amount trade with China each year) and a small range to trade within are a start.

 

[DRB]

You can't expect huge changes overnight from an economy that size. It's utterly unrealistic. China has over a billion people to provide for. China commited a long time ago to eventually change the lock on it's rates, and made it clear at the time it may take a long time and it would do so at it's convenience. When does any country, let alone America or 'Old Europe' even demand any less in such a position? China has now made a start. America and the West have been noisy about this for a while. A PR victory. A 2.2% revaluation in your favour (Think what this actually means when you consider the amount trade with China each year) and a small range to trade within are a start.

See but it is not in the West's favor. All this will probably do is drive inflation up which will force the west to react by tightening interest rates which will increase the value of the dollar/euro/pound...... are you getting it?

And you continue to miss the fact that there is no trading on yuan. The Chinese come out everyday give the value with the range they have established and that's that.

I don't expect drastic changes BUT a road map to a market driven yuan would be an expected step. So don't expect me to get all excited in the pants about, what in reality, is a false change.

 

[mack]

I remember i made a post of this a while ago, but now i am just plain confused.

 

[DRB]

I remember i made a post of this a while ago, but now i am just plain confused.

What else is new? What are you confused about?