|
2005 currency policies get very good marks
(Shenzhen Daily)
Updated: 2006-01-03 09:05 As China¡¯s central bankers look to 2006 and plan
further reforms to the country¡¯s foreign exchange regime, analysts say they can
pat themselves on the back for a job well done last year.
Their July 21 revaluation of the yuan by 2.1 percent managed to tread a
careful path between the conflicting demands of U.S. and Chinese exporters ¡ª
although some analysts felt more could have been done ¡ª and since then they have
moved steadily to create a more flexible trading system.
¡°I think they¡¯ve been doing very well. They¡¯ve been moving aggressively in
terms of building up the necessary financial infrastructure,¡± Frank Gong, chief
economist with JP Morgan Chase in Hong Kong, said of the central bank.
The yuan has risen by less than 0.5 percent against the U.S. dollar since the
revaluation, and ended at 8.07 per U.S. dollar Friday.
¡°I personally think the best option would have been a larger one-time
revaluation and quicker appreciation since then,¡± said Song Guoqing, chief
economist at the China Stock Exchange Executive Council, a think tank in
Beijing.
Since the revaluation, the central bank has steadily introduced such foreign
exchange derivatives as forwards and swaps, giving institutions and firms tools
to hedge against currency fluctuations. It has also launched a
liquidity-promoting trading method known as market-making, set to take effect in
early 2006.
Gong played down concerns that the yuan has not risen quickly enough, noting
that it had appreciated by more than 6 percent against the trade-weighted basket
over the year.
¡°That the yuan did not weaken, but actually strengthened, in a strong U.S.
dollar environment is a very good sign that once the weaker dollar environment
resumes, you will see more significant appreciation of the yuan against the
dollar,¡± he said.
2006 should see even more aggressive development of market infrastructure,
meaning more products, more flexibility, more competition, and less interference
by the central bank, said Minggao Shen, China economist with Citigroup in
Beijing.
Shen praised the central bank¡¯s efforts at communicating to the U.S.
Government why it needed a gradualist approach.
As to the central bank¡¯s performance in letting the market know its
intentions, Shen said, ¡°At least it has been consistent in terms of saying it
wanted a continuous but slow pace of appreciation.¡±
The central bank has repeatedly said any further appreciation in the yuan
would be gradual and would take place within the exchange rate regime
established in July.
Many economists take the central bank at its word on that. A number of
investment bank economists have issued research notes last month projecting that
the yuan will appreciate at most by 4 percent over 2006. Few expect another
sudden revaluation.
¡°If China suddenly appreciated its currency dramatically now, I think it
would be a disaster for many firms and financial institutions,¡± Shen explained.
Still, rumors of another revaluation continue to crop up ¡ª the latest being a
report in the German magazine WirtschaftsWoche earlier in December saying a
revaluation could happen Jan. 1.
While some might fault the central bank for not responding effectively to
such rumors, economists were quick to defend it ¡ª even if it is not always
forthcoming about its intentions.
¡°I don¡¯t think the yuan policy should be very transparent, because
speculative forces always want to take advantage of policy changes,¡± said Wang
Chuanglian, an economist at Great Wall Fund Management in
Shenzhen.
|
