China reveals currency secrets
guardian.co.uk
Heather Long
Friday August 12, 2005
The Guardian
China's central bank has taken the unusual step of disclosing the make-up of the basket of currencies it uses to manage the renminbi. The announcement sent the currency to a record high on the foreign exchanges.
The bulk of the basket is composed of the currencies of China's four major trading partners: the dollar, the euro, the yen and the Korean won.
The People's Bank of China stopped short of revealing the weights of each currency. Analysts disagree about the importance of the dollar in the basket, with speculation putting it anywhere from 30% to 70%.
The currency, also known as the yuan, was pegged directly to the dollar for a decade. It has been trading at 8.11 renminbi to the dollar since a 2.1% revaluation on July 21, but it closed stronger at 8.10 renminbi after the announcement late on Wednesday.
"It stacks the odds in favour of the central bank when it's not wholly transparent," said Stephen Lewis at Monument Research. "Any private speculator will not know the impact of intervention on positions taken up in the market."
Zhou Xiaochuan, the governor of China's central bank, said other currencies the bank followed were the Canadian, Australian and Singapore dollars, the Thai baht, the pound and the Malaysian ringgit - all significant trading partners with China.
The inclusion of so many Asian currencies signals China's leadership in regional trade. For many years, most Asian trade transactions were conducted in US dollars, but now the Asian currencies will be more stable and interlinked as many suspect the Chinese will begin to conduct business in local currencies. |
