AI
Thursday, July 17, 2003 3:51:27 PM
*** Fed's calls for yuan float grow louder ***
Hi George,
Imo, China would be nuts to allow the Yuan to float because to do so would, in all probability, result in an immediate plunge in the value of the USD, thereby causing a huge loss in the value of the half trillion or so of USD foreign reserves currently being held in the Chinese coffers.
Were I running China, before dropping the peg, I would, as covertly as possible, convert most of those dollars into gold bullion and gold futures contracts so that when I finally did allow the yuan to float free it would result in the dollar double timing it towards the basement which, in turn, would cause the PoG to take off for the wild blue yonder.
For China, a win win win situation.
=============================================================
Fed's calls for yuan float grow louder
Craig Torres and Yumi Kuramitsu Bloomberg News
Thursday, July 17, 2003
Forwards soar on Greenspan remarks
Alan Greenspan, chairman of the Federal Reserve, jolted currency traders in Asia on Thursday after he told a U.S. Senate committee that Asian countries could not hold down the value of their currencies indefinitely and urged China for the second time in two days to ease restrictions on the yuan's value. Forward contracts for the Chinese yuan surged in Hong Kong. The Singapore dollar and Thai baht also rose.
Greenspan told the Senate Banking Committee in Washington on Wednesday that Japan, China, South Korea and Taiwan had the largest foreign currency holdings in the world. "The motive here, in many respects, at least as I judge it, is to suppress the value of their currency," Greenspan said. "They cannot do it indefinitely."
The discount between the rate for one-year yuan forward contracts and the fixed rate for the currency against the dollar ballooned to as much as 1,835 points, a one-month high from 1,540 points on Wednesday.
The rate implies that the Chinese currency, if freely traded, would strengthen to about 8.09 per dollar. China's currency has been pegged at around 8.3 to the dollar since 1995.
In Singapore, the U.S. currency fell 0.2 percent to 1.7593 Singapore dollars, while in Bangkok, the dollar slipped to 41.57 Thai baht from 41.64 baht Wednesday. (Page B3) The dollar's 7.4 percent decline in the past year against six major currencies such as the euro, the yen and the British pound has drawn increasing pressure from China's trading partners to allow the yuan to trade more freely.
China's fixed exchange rate "has created a degree of stability," Greenspan said. "But it has required them to, in order to hold that rate, be very heavy purchasers of U.S. dollar-denominated assets. At some point they will no longer be able to do that, because it will create an inability of their monetary system to function well."
Greenspan echoed his comments to the House Banking and Financial Services Committee on Tuesday, when he said the yuan was "undervalued."
"We haven't seen Greenspan making such comments in the past," said Tommy Ong, vice president of treasury and markets in Hong Kong at Dao Heng Bank Group. "The comments were an added catalyst for the yuan discount to widen" as investors bet China will move to a more flexible policy.
The governments of Japan and Thailand have sold their own currencies in recent months to help exports stay competitive, and China is under pressure from the United States and the European Union to let the yuan appreciate.
China, the world's sixth-largest economy, is enjoying record trade surpluses and a surge in foreign direct investment. The country's foreign reserves rose to $346.5 billion in June from $340 billion a month earlier.
China has ruled out any immediate change in its currency policy.
Kong Quan, a foreign ministry spokesman, reiterated Thursday that it would maintain the yuan's peg to the dollar, saying that it was "not only in the interests of China, but also the rest of the world."
http://www.iht.com/cgi-bin/generic.cgi?template=articleprint.tmplh&ArticleId=103130
Hi George,
Imo, China would be nuts to allow the Yuan to float because to do so would, in all probability, result in an immediate plunge in the value of the USD, thereby causing a huge loss in the value of the half trillion or so of USD foreign reserves currently being held in the Chinese coffers.
Were I running China, before dropping the peg, I would, as covertly as possible, convert most of those dollars into gold bullion and gold futures contracts so that when I finally did allow the yuan to float free it would result in the dollar double timing it towards the basement which, in turn, would cause the PoG to take off for the wild blue yonder.
For China, a win win win situation.
=============================================================
Fed's calls for yuan float grow louder
Craig Torres and Yumi Kuramitsu Bloomberg News
Thursday, July 17, 2003
Forwards soar on Greenspan remarks
Alan Greenspan, chairman of the Federal Reserve, jolted currency traders in Asia on Thursday after he told a U.S. Senate committee that Asian countries could not hold down the value of their currencies indefinitely and urged China for the second time in two days to ease restrictions on the yuan's value. Forward contracts for the Chinese yuan surged in Hong Kong. The Singapore dollar and Thai baht also rose.
Greenspan told the Senate Banking Committee in Washington on Wednesday that Japan, China, South Korea and Taiwan had the largest foreign currency holdings in the world. "The motive here, in many respects, at least as I judge it, is to suppress the value of their currency," Greenspan said. "They cannot do it indefinitely."
The discount between the rate for one-year yuan forward contracts and the fixed rate for the currency against the dollar ballooned to as much as 1,835 points, a one-month high from 1,540 points on Wednesday.
The rate implies that the Chinese currency, if freely traded, would strengthen to about 8.09 per dollar. China's currency has been pegged at around 8.3 to the dollar since 1995.
In Singapore, the U.S. currency fell 0.2 percent to 1.7593 Singapore dollars, while in Bangkok, the dollar slipped to 41.57 Thai baht from 41.64 baht Wednesday. (Page B3) The dollar's 7.4 percent decline in the past year against six major currencies such as the euro, the yen and the British pound has drawn increasing pressure from China's trading partners to allow the yuan to trade more freely.
China's fixed exchange rate "has created a degree of stability," Greenspan said. "But it has required them to, in order to hold that rate, be very heavy purchasers of U.S. dollar-denominated assets. At some point they will no longer be able to do that, because it will create an inability of their monetary system to function well."
Greenspan echoed his comments to the House Banking and Financial Services Committee on Tuesday, when he said the yuan was "undervalued."
"We haven't seen Greenspan making such comments in the past," said Tommy Ong, vice president of treasury and markets in Hong Kong at Dao Heng Bank Group. "The comments were an added catalyst for the yuan discount to widen" as investors bet China will move to a more flexible policy.
The governments of Japan and Thailand have sold their own currencies in recent months to help exports stay competitive, and China is under pressure from the United States and the European Union to let the yuan appreciate.
China, the world's sixth-largest economy, is enjoying record trade surpluses and a surge in foreign direct investment. The country's foreign reserves rose to $346.5 billion in June from $340 billion a month earlier.
China has ruled out any immediate change in its currency policy.
Kong Quan, a foreign ministry spokesman, reiterated Thursday that it would maintain the yuan's peg to the dollar, saying that it was "not only in the interests of China, but also the rest of the world."
http://www.iht.com/cgi-bin/generic.cgi?template=articleprint.tmplh&ArticleId=103130
Dan 
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