Renminbi Devaluation Coming?
Naughty Australians
Asian currencies fell sharply yesterday after a report on the internet that a Chinese central bank official had suggested Beijing would come under increasing pressure to devalue the renminbi (yuan) in the second half of this year.
The Indonesian rupiah, already in trouble as a result of three days of riots and looting in the city of Medan and a prolonged banking and financial crisis, tumbled to about 10,000 to the dollar in early trading, 10 per cent down from Wednesday's close.
It later recovered ground after Indonesia's central bank raised key interest rates from between 4 and 12 per cent.
Other Asian currencies which suffered sharp early losses before recovering later included the Malaysian ringgit and the Thai baht.
Yi Gang, deputy secretary-general of the monetary policy committee of China's central bank, denied having anything to do with the report, which was published on the internet site of the Australian Financial Review magazine.
He said yesterday he had not co-operated in the preparation of the academic paper, which was summarised in the report on the Australian Financial Review's web site.
"When I heard of this report today I was very surprised," he said.
He said the paper had been written by Song Ligang, an academic with the Australian National University, who was identified in the report as the co-author. Mr Yi said Mr Song appeared to have incorporated some ideas from recent publications by Mr Yi.
The Australian Financial Review's report said the paper had been delivered at an Australian National University conference on the Asia crisis held last Tuesday.
The academic paper said: "Given the market demand and supply of the foreign exchange, the RMB exchange rate will remain at the current level of 8.27 yuan to the dollar as promised repeatedly by the government, but pressure for devaluation will increase in the second half of 1998 due to the impact of the financial crisis on China's exports."
The paper added that China faced risks including a "real danger of economic disinflation which would have negative effects on the reform process".
Mr Yi said none of his recent research suggested pressure on the renminbi to devalue would intensify later this year.
He added that, in his view, despite policy challenges, China would achieve a growth rate of 8 per cent this year.
China's leaders have stated on several occasions that the renminbi will not be devalued, despite the fact that some exports, such as textiles, are suffering through the enhanced competitiveness of south-east Asian manufacturers after last year's sharp depreciations in their currencies.
Zhu Rongji, the recently appointed prime minister, told bankers in London last month that devaluation was not on his agenda.
The Financial Times, May 8, 1998 |
