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July 15, 2005
Is Remninbi Revaluation Imminent?
According to the Financial Times, the Bush administration is saying "yes".
The Bush administration has told key senators that it expects China to revalue its currency in August ahead of a planned visit to Washington by President Hu Jintao in September, according to people familiar with the matter.
Senators Charles Schumer and Lindsey Graham, co-sponsors of a bill that would impose a 27.5 per cent tariff on Chinese imports, agreed to delay a vote on their bill after receiving what they regarded as an assurance that China will move on its currency next month...
“Senator Graham and I believe that the administration is convinced that China will begin a revaluation process this summer, forced by our bill's success in the Senate,” Mr Schumer told the FT...
China is considering introducing a currency regime similar to the managed float operated by Singapore. Under this system the renminbi would be pegged to a basket of currencies reflecting the country's trade, but the details of the weights of the basket would not be made public, a person familiar with the Chinese administration's thinking said.
If this story is true, we may finally get our much anticipated natural experiment on whether the policies of the Chinese central bank have been responsible for low long-term interest rates in the United States.
The debate over the renminbi will be fuelled, in China as well as in the US, by news that the country's foreign exchange reserves increased by more than $100bn in the first six months of this year to $711bn.
China's foreign reserves are on track to break $1,000bn by June next year if it continues to expand at the present rate.
Kash guesses the adjustment will fall in the range of " 10%, not much, a very slight rise, and almost none. "
China is a $2 trillion economy. That rate of reserve accumulation means that 10% of China's total income is being spent buying reserve assets--the overwhelming bulk of them dollar-denominated.
That is amazing...
UPDATE II: The New Economist says "don't expect [revaluation] to solve the massive US-China trade deficit." Brad Setser contributes his usual excellent analysis and adds "I think DeLong somewhat overestimates the chances (four in five?) of avoiding a crisis of some sort, though I agree with his assessment that the odds of a crisis are rising."
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Tracked on Jul 15, 2005 3:10:36 PM
China Will First Invest And Then Revalue
The Prudent Investor
Following the discussions on Brad Setser's and Brad DeLong's blogs about an imminent Yuan revaluation I am astounded that nearly everybody assumes the China export dragon will fly forever and even accelerate on that way while using all cash receipts ... [Read More]
Tracked on Jul 18, 2005 11:39:37 PM
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