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Jim O'Neill On The CNY Regime Change
From Goldman's Jim O'Neill:
A large number of people have been asking me for my thoughts since the news was announced on Saturday. I have been in St Petersburg for the annual Forum- a bit more of which below-so I was unable to write over the weekend. Any in case, a number of pieces have been published by the ECS team, including from Thomas Stolper on the near term FX implications (bullish risk currencies), Fiona Lake (on how a real China TWI might move /be managed) and of course, from everyone in Asia on the move itself; Helen Qiao, Yu Song and Mike Buchanan. Many of these folks will be on a webcast this morning.
Here are my 2 cents briefly;
1. What specifically is happening, and will happen to the CNY? Like many others, I went to bed last night thinking that how Beijing allowed the fix to move today would be key. In fact, it was unchanged, and since then spot has moved notably from 6.8275 down to 6.8055 last print. I am reminded, that truly technically, today’s fix reflects the previous days trading, so in this regard, where we close will determine tomorrow’s fix, and in some sense today’s fx was not relevant. Given that the PBOC statement said that the daily trading band will not be widened ( beyond the 0.5pct which it has never experienced), this means the limit for today is 6.7930 I believe. Of course, it also means if this is all true, then we could have in theory a maximum 2.5pct rise of the CNY against the Dollar this week. I guess if that happened, and you times it by 52 even Congress would be happy, a 130pct move….I doubt that Mr. Schumer……
It will be fascinating to see where it closes today, fixes tomorrow, and is allowed to trade.
2. If they are going to indeed pursue a more genuine trade weighted peg, then this actually means what happens to EUR/$ is important. In this regard, the China move adds to my belief that it is really risky to be short Euros these days (and has been amongst the reasons in recent weeks as to why I could no longer be so bearish as it was obvious a CNY move of some sort was coming). Washington will want to see more CNY strength vs. the $ and this will make it , marginally, more harder for the Euro to be “allowed” to weaken.
3. Beyond this issues, the CNY move is a clearly bullish development for equities and risky assets in my judgement. It reduces the risk of protectionist policies in DC, it is a great move ahead of the G20, suggesting that the G20 in fact is getting its act together again after a somewhat shaky 2010 to date, and of course, it is a real sign that China is more and more happy about its ability to adjust its economy to a domestic led recovery from a pre crisis export driven one. Some skeptics are saying things like such a small move will not change the world, but that is very much short sighted. It has to be seen in the context of everything else going on in Beijing, including the move to endorse significant wage increases. It is all part of a world to shift growth to domestic demand especially consumption.
Hats off to Beijing, despite them moving 19 days beyond my Hat deadline! Their general policy behavior since late 2008 has been excellent in my opinion, and continues to be a bit of a lesson for many others.
As for St Petersburg, I was at the annual Forum, which is essentially a Davos type event held in Russia. I was on 2 panels, one about the BRICs and the global monetary system, and the other about SWF funds and diversification post crisis ( which had some big funds speaking also). I did not attend in 2009, so this was my first visit to the Forum since 2008-pre Russia crisis. ( obviously have been to Moscow though) In this context it was extremely interesting.
Back in June 2008, I gave a special presentation about how Russia might look in 2020, and my sub 4pct GDP growth on average was regarded as deeply pessimistic and too cautious by many, including of course, my hosts… this time, the mood is much more sensible. As one other delegate put it to me, at the 2008 Forum, Russia was “ drunk on rising oil prices”. In fact, I increasingly see signs- just like China and for the other BRICs- the global crisis has been good for Russia, as it is doing things to change its ways ( except for St Petersburg airport which is still hopelessly out of date). The demographics are improving, policies are afoot to reduce the economy’s dependency on oil and gas, and there are quite a few initiatives to boost the technology world. I even gather than Medvedev is making a personal trip to Silicon Valley in coming days.
People that think we should drop the R in BRIC should disappear down the plug hole soon, as they are in for some more positive surprises, along with the –rising-evidence of a decent cyclical recovery.
As for the World Cup, as Simon Kuper points out in today’s FT, out of nine games so far, the “big European 5” have won just one……..If England fans think it is bad, try thinking for the French…….
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yuan, bitchez
a 2.5% move per week for 52 weeks does not result in a 130% cumulative move....
denarii
Are you considering linear or exponential growth? Indeed, is O'Neill?
DavidC
well a linear move would render the USD worthless, and an exponential one would not get to 130%.
it would be better if jim restricted himself to tweets as at least then he would have to stay focussed.
Firstly O'Neil,Ha....2 cents for your thoughts......up from a mere penny.....talk about inflation.This dude talks about BRIC and PIIGs nations all night long.Here....Dude a got a good bedtime story for ya.Once upon a time there were these little PIIGs see and a real BADASS WOLF who came a call'n one day and blew down their house made of straw.The PIIGS got clever and then made it outta wood see but BADASS WOLF huffed'n puffed and blew poor old PIIGGIES house down.The SWINES then had one last great idea.They got together and made a solid BRIC house as the last stand by getting a loan from the ECB(European Construction Bank).
The next day came BADASS WOLF call'n...."Little PIIGs...little PIIGs let me in".
The SWINES replied"Hey WOLFY, by the hairs on our chiny chin chin we will not let you in in so go f***yourself"!
But unfortunately later on that day ROASTED BACON was served at THE BADASS WOLVES LAIR due to the fact the BRIC house was built on SAND plus of course WISE'OL WOLFY bought along some sticks of dynamite that blew the BRIC house and PIIGS to Kingdom-Come.
Sweet Dreams Dude!
http://www.youtube.com/watch?v=_CYwNWHZuT0