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"Hot money" bet on RMB revaluation remains big threats
Updated: 2004-11-29 10:05

Movers of "hot money" -- the sort who toppled Asian currencies in 1997 -- will not be able to do the same thing in China, economists say. Even so, financial speculators betting on an RMB revaluation pose a serious threat tothe nation's economy, according to the Beijing Morning Post.

"China does not have a highly developed financial derivatives market with foreign exchange futures and options trading," Dr. Yu Weibin with the financial research institute of the Chinese Academy of Social Sciences (CASS) told the newspaper. "This means hot money movers can only change foreign currencies into RMB or buy in RMB assets with the hope of making a profit after an RMB appreciation," he said. "Hedge funds that want to make a killing here have many difficulties to overcome in operation."

However, worries that hot money will deeply affect China's financial system remain, the paper said.

Andy Xie, the chief Asia economist for Morgan Stanley in Hong Kong, told the paper that global hedge funds that can allocate three to four trillion dollars are likely to break down China's 1.7-trillion-dollar economy as these funds will rush in after the RMB appreciation.

According to the State Administration of Foreign Exchange, China's foreign exchange reserves reached a record high of 514.5 billion US dollars at the end of September, 111.3 billion dollars of which were added in the first nine months of this year.

Many economists estimate that 20 to 50 billion dollars of hot money has flown into the Chinese mainland so far.

The inflows and outflows of hot money are the result of inadequate supervision of the current account under a fixed foreign exchange system, the paper quoted Dr. Yin Jianfeng, also from CASS, as saying.

Those international gamblers are the external cause of China's inflation, he told the paper.

The People's Bank of China, China's central bank, has been forced to issue more RMB to buy foreign currency inflows and hencecaused the prices to go upward, the paper reported.

Foreign countries, the United States in particular, have long argued that the yuan is seriously undervalued, giving Chinese exporters an unfair advantage in global markets.

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