| Is Chinese currency pegged again?
Historic financial milestone was reached regarding Chinese currency, the new Renminbi. National foreign reserve holdings exceeded the $2 trillion mark, as money pours back into China to take advantage of faster economic growth. Swiftly inflating asset prices are also cited as a reason. The second quarter gross domestic product figures are expected to record strong growth, of about 8% for the last three months. The People’s Bank of China, nations central bank, announced on its website that foreign reserves reached $2,132 billion at the end of June following massive accumulation of funds in the second quarter.
In spite of views to the contrary, oversized foreign reserves are a serious headache. For example, in order to keep the Renminbi stable,the central bank buys US dollars and other foreign currencies coming into China, and then holds the funds on its balance sheet. This creates a de facto "peg" of Renminbi to US dollar. The latest figures also represent an abrupt reversal of an emerging trend of the previous two quarters.
The influx of funds is certain to renew pressure from trading partners for a revaluation of the Renminbi. Timing is not very challenging, since the government and domestic business are focused on financial stability. It appears that Beijing is finding itself in a squeeze not unlike the one that earlier in the decade, with a flood of hot money trying to force the authorities hand on the currency issue. The same expectations of Renminbi appreciation will start to surface again soon and possible become a focal point going forward...
More about Renminbi here.
Last edited by dazzler; 01-05-10 at 01:31 AM.
Reason: Removed hotlink
| 
|
08-01-09, 10:34 AM
Similar Newss 
Linear Mode
