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China Considering Expanding Yuan Trading Band
In what could be a first step to appeasing the US and its requests for CNY revaluation, Caijing has reported that China may be considering expanding the daily yuan trading band. The yuan currently fluctuates up to 0.5% around the central CNYUSD parity set by the PBoC - today, for example, the CNY was stronger by 1 pip from 6.8264 to 6.8263. As reported by Market News, citing an
unidentified Chinese government source, "If the central bank does not want to see a quick rate hike, a
better way to fight inflation would be to expand the daily yuan trading
band to allow the yuan to appreciate properly." One interpretation of this development is that China, anticipating a delay of the Treasury report widely expected to brand China a currency manipulator, will placate the US just marginally and split the baby in the middle, by allowing a trading band expansion. Of course, this will do nothing to actually revalue the Yuan, devalue the dollar and boost US exports, but it will allow the Obama administration to save face and say "look, China made a concession" which the teleprompter will explain is an indication that the Obama administration now has the upper hand in Sino-US negotiations, followed by a round of applause from yet more to be soon unemployed people.
More from Market News:
The idea, if approved by the State council, could take effect in
April, which is seen by officials as a key time for "perfecting" the
Chinese foreign exchange regime as it is almost five years since the
initial Chinese foreign exchange reform in July 2005, the magazine said.
Mid-April will be a key time for the debate on the yuan exchange
rate, as the U.S. Treasury is due to issue a report on whether China
manipulates its currency. A finding that it does could open the way for
trade sanctions. However, there have been rumors that the Treasury
report will be postponed until after the next round of the Sino-U.S.
Strategic and Economic Dialogue scheduled for May.
China is under increasing pressure to allow the yuan to resume
appreciating against the dollar, with critics charging it gives Chinese
exporters an unfair competitive advantage. China has effectively
repegged the yuan to the dollar since mid-2008 to offset the economic
impact of the global financial crisis, and has said its will not allow
the yuan to appreciate until the economic outlook is more certain.
As the trading band was increased from 0.3% to 0.5%, in May 2007, we are confident that a daily expansion to 0.6% would truly be a remarkable compromise by all involved.
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Roach: Who got that bat?! Who got that bat?!
A wider band allows the BoC to strategically devalue the yuan just as readily.... hmmm.
Exactly...compromise with a twist. Which way will it go?
Yes.
A cogent case can be made that in the extreme case (a freely floating model) the yuan may well in fact fall sharply as capital, which heretofore entered China under a strict exchange regime over the last 20 tears, looks to repatriate profits/excess free cash flow.
Classic careful what you wish for, coupled with heavy dose of Unintended Consequences; political as well as economic.
"Of course, this will do nothing to actually revalue the Yuan, devalue the dollar and boost US exports, but it will allow the Obama administration to save face and say "look, China made a concession" which the teleprompter will explain is an indication that the Obama administration now has the upper hand in Sino-US negotiations, followed by a round of applause from yet more to be soon unemployed people."
Smart move China; they are way ahead of the US
Maybe the Chinese will issue a report branding the USA a gold price suppressor & capital markets manipulator to counter any US Treasury attack against them. Let them that are without sin cast the first stone...
Do we need them to issue a report on US and other central banks' gold manipulation?Mr Brown cannot even provide a coherent answer wtf he sold gold at the lowest point in the last decade. IMF would not sell gold to Sprott.
The best thing would be to not respond favorably to Chinese attempts at appeasement. But then the only thing that will please those whom are calling for the manipulator label is outright pain on China's end(the kind that results in US jobs). It would be a very tough thing for them to thread that needle (visibly and meaningfully lose face) and make a gain on it. However, pain is the only thing that will address the folks who have seen China make appeasement after appeasement.
China's done it enough times that I'm surprised it still works and nobody calls it out.
Well, the US wants a floating Yuan so it can better manipulate manage its own currency with the Euro and Yen. It is more difficult to inflate the debt away in the big 3 currency countries with China pegged. Remember you can't create useful inflation if you have no one to inflate against. Or, if everyone in the world is inflating at the same rate, what are you (FED) gaining? Now that the citizen weath transfer is about done, you need to use the world to keep the game going.
I'm not sure about the logic you are using. Right now, with a Yuan-dollar peg, the Fed is able to monetize huge amounts of debt without the pain caused by rapid inflation (basically hyperinflation without the inflation). Most of the inflation is being absorbed by the Chinese.
The effect is that the government gets a free pass so long as that peg is in place and the Chinese remain solvent. This is equivilent to a pair of mountain climbers going up a cliff face. One, China, is in the lead, and the other is just hanging limply below, but he continues to rise because China is pulling him up by the rope tieing the two together, known as the US/Yuan peg. How anyone can think that China cutting that rope will cause China to fall off the cliff is beyond me. The US isn't hanging on, it's going through the motions, suspended in mid-air by China's explicit currency support.
If they had severed this peg while we were actually still holding on to the cliff face, we might not have fallen so far, but we're 3/4ths of the way up the mountain, with all of the dollars China has accumulated. Once that rope is cut, they may well toss off the anvils they have been accumulating in the form of dollar denominated debt and US currency reserves. We'll hit the ground hard, and then that crap will land on our heads. The results won't be pretty. China, free of the exces weight, will find that it has developed some rather spectacular muscles, and will find itself on top of that mountain in no time, and unencumbered by deadbeat Western "friends".
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