Update for Recent development in Chinese Yuan
1. The expectation or speculation about a Chinese Yuan revaluation started from the beginning of 2003.
2. Why we say 2003? Because the Non-deliverable forward of USD against Chinese Yuan started to fall into discount from premium at the beginning of 2003.
3. Non-deliverable forward is a type of derivative in the foreign exchange market where by the home currency is not delivered (or settled, transferred) at maturity, instead the difference of market rate against the contract rate is settled with a reference currency (usually USD).
4. China has a very restricted money market and therefore commercial loans are not readily accessible in short tenor such as overnight or 1 week, the most common interest rate benchmark in China is a 1-year bank lending rate, which currently stands at 5.31%, if we compare the Chinese interest rate with the US rate of the same tenor (1 Year US rate is approximately 2.35%), in foreign exchange market, assumed that Chinese Yuan is convertible, the USD should be at a premium against the Chinese Yuan. In the non-deliverable market, however, the USD is trading at a discount against Chinese Yuan after January 2003, which obviously is not logical from an interest arbitrage point of view. The reason is that the assumption that Chinese Yuan is freely convertible is void, the USD discount ( for instance 1-year non-deliverable forward discount of USD is 2400 pips or 0.24 Yuan) is an implied expectation of Chinese Yuan revaluation in one year’s time as perceived by the market.
5. The expectation that Chinese Yuan would appreciate and happen in foreseeable future was advocated by major US Investment Bank such as Goldman Sachs and Morgan Stanley. International organizations such as IMF started to talk more about the issue ever since 2 years ago. In the recent years, there was a very fast expansion of Chinese export into the United State. The most recent number of US July trade deficit announced last Friday was $50.1 billion, though lower than the June historical record of $55.8, still formed as a threat for financing of these huge deficit through capital account surplus by the US. Furthermore, the July US trade deficit with China set another monthly record at $14.9 billion as imports increased 3.7% from June and exports fell 2.6%. US manufacturers and politician still blamed China’s policy of pegging its currency against the US dollar for the soaring bilateral deficit.
China’s acquisition of a significant foods company and its joint venture with the Artal Group starts back to the beginnings of the global economic crisis and the worldwide food shortage. As European and American assets decreased significantly, the Chinese renminbi has been greatly appreciated against the American dollar. Throughout its economi...
Foreign exchange is a commodity, and its price fluctuates based on supply and demand, like any commodity. This is not the place for a complete discussion of supply and demand as relates to foreign exchange, but for our purposes, we will assume that supply of and demand for a country’s currency moves along with the supply of or demand for that country’s products or the products of its trading partners. For example, if one country buys many more goods from its neighbor than its neighbor buys from it, the balance of payments at the end of the year will cause its neighbor’s currency to be in great demand, thereby driving its price up.
This paper will begin by examining the economic background of China. We will see how China came to be in the position to devalue its currency as well as address some controls that were used to inhibit the devaluation. The paper will continue by ex...
China's continuing impact on the world economy lands in developed countries that include Hong Kong, Europe, Japan, and Australia have no choice but to deal with the very real potential of a decline in export activities. However, what offsets these negative are lower commodity and oil prices, along with lower interest rates, which provide hope of a boost in the global financial world.
China has become the second largest foreign direct investment recipient country in the world and the largest recipient among developing countries. Since 1978 the foreign direct investment has flooded into the country. In 2002 china became the first country for a very long time to attract more foreign direct investment in one year then the United States (bringing in US$53.2 billion while US$52.7 billion flowed into the United States).
currency status as a result of the China-US trade relationship. Journal of Global Business and Technology, 10(2), 43-59. Retrieved from Business Source Complete
In the past two decades, China has enjoyed the one of the world’s fastest growing speeds. And for right now, China has been the most major contributor to the world economic growth. But in the recent years, the global financial crisis already did a huge damage to the Chinese growing economy. Especially in the aspect of exporting sector, China has been hit hardly by this crisis. The dramatic fall of external demand led to dramatic slowdown of the economy, and tens of millions of worker in the factor was laid-off during the crisis. Considering to Chinese government, it is critical for them to keep a stable growth which is viewed as the way to maintaining social stability. Because China, right now, is the major economic power in the world, and holding extremely huge amount of foreign exchange reserves, it is important to care about Chinese economy situation.
The use of foreign exchange arises because different nations have different monetary units, and the currency of one country cannot be used for making payments in another country. Because of trade, travel, and other transactions between individuals and business enterprises of different countries, it becomes necessary to convert money into the currency of other countries in order to pay for goods or services in those countries. The transfer of money values from one country to another and the determination of the price at which the currency of one country will be surrendered for that of another constitute the main problems of foreign exchange. Foreign exchange is a commodity, and its price fluctuates in accordance with supply and demand. Exchange rates are published daily in the principal newspapers of the world. By international agreement fixed exchange rates with a narrow margin of fluctuation existed until 1973, when floating rates were adopted that fluctuate as supply and demand dictate.
...d or removed, or turned into “a corridor for the exchange rate (against the US dollar or the RMB or an undisclosed basket of currencies)”. In general, it’s better for Hong Kong to keep the current exchange rate regime as the consequences of those proposals are still not clear.
The massive increase in the Chinese trading relations was fueled by the United States in the year 1979 through the normal trade relations between the two countries. In addition, the Chinese non-concession to the World Trade Organization (WTO) in the year 2001 also facilitated its trading activities with different countries including the United States (Kaplan, 57). However, trading relations with the Chinese have been uneasy resulting from the massive trade imbalances in the recent past, which grows exponentially. The protectionist policies of the United States especially in Washington and Beijing have been putting pressure on the Chinese to revalue their currency as well as protecting it from counterfeits, which may be of adverse effects to the trading relations. This paper gives a comprehensive discussion on the foreign trade relations with china. It further gives an elaborate discussion on the impacts of foreign tr...
...erally felt united in the common cause of building up China (Fairbank and Goldman 369).Fully 8 years were wasted in terms of economic growth and the cost of opportunity loss was enormous. Considering that this setback occurred when other Asian countries were taking off economically(Chan3).
Xingzhong, LI Daokui David YIN. "The International Monetary System in the Era of Post-Financial Crisis: What Policy Options Does China Have?[J]." Journal of Financial Research 2 (2010): 005
For over a decade, China’s economy has experienced some dynamic changes, especially with the transformation of their labor market. China’s entry into the World Trade Organization (WTO) in 2001 was a significant event because it symbolized to the global community their country was a competitive trading par...
market high, China needs the RMB to stay at a low price, so the government interfere in
Despite the fact that recent reports have shown that the Chinese currency is currently facing descending pressures, it is, however, likely to improve in the future because of the enhanced terms of trade, current account surplus that is growing, and high net saving. Another reason that will make the Chinese RMB to do well in the future it is because the currency has solid fundamentals and the economy of the country is significantly increasing at a higher rate than the GDP rates. Due to the growing Chinese economy to being the second largest economy, the Chinese currency yuan has been acknowledged by the International Monetary Fund (IMF) as a major global