FOREX
Since July 05, the Yuan is no longer pegged against US dollar for the first time in a decade, followed by Malaysia in days later to un-peg RM that fixed at 3.8 against US dollar since the Asian financial crisis in 97.
I was really shocked when I heard about the news, as Chinese export always benefited from the cheap Yuan and what bothered China to change if indeed cheap Yuan is good for them. Could it be being pressured to revaluate Yuan by its counterparts, esp US from time to time?
Although the pegs are gone officially, but both currencies are still float to a limited extend against a basket of currencies to stabilise their currency and prevent from huge daily fluctuation. So, do you think the pegs are really gone or have been broaden in a hidden way? Let’s make your own judgement.
As we know, it is quite impossible for syndicates to attack any currency substantially, if it is associated with a basket of other currencies, unless they attack the whole basket, where US dollar also in there. Apparently, this is a very smart strategy being used by China to deal with its export rivals whom always blamed on unfair competitiveness due to cheap currency.
Furthermore, China has just overtaken Japan on this year and owns the largest foreign-exchange reserves in the world. Furthermore, it reserves more than 3 times of its current-account surplus; whereas US is suffering the largest current-account deficit that doubt countries to hold US dollar any longer.
Having known other than the trade surpluses, in-flow of foreign direct investment and speculative capital are the main cause of the increase in China reserve, which is their main weapon in fighting against future crisis.
Well, to put it in a nutshell, don't feel surprise if China developed much quicker than you thought and also, dominated the world economies in the next few decades.
posted by zhenwei @ 1:07 PM
