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Appreciation of Chinese Currency won’t Narrow the Trade Gap
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I believe that appreciation of chinese currency won’t narrow the trade gap because China has far more trade advantages than any other competitor.Therefore currency appreciation wont have the effect that US market expects. China's central bank, under pressure from the U.S. and other Group of Seven nations to make the yuan more flexible, will in 2007 pursue a ``stable currency policy'' to promote economic growth.
According to governor Zhou Xiaochuan , The People's Bank of China will continue to
strengthen and adjust financial control mechanisms, execute a stable currency policy, improve
foreign exchange management and push for financial reforms and innovation.
They want to contribute to ensure stable and accelerated economic development.
The market has expectations for the yuan to appreciate further and the Chinese government is
also willing to let the yuan strengthen to ease the problem of the widening trade surplus,
Whether the appreciation will narrow the trade gap, I am sceptical about it.
China's widening trade gap has driven the nation's foreign- exchange reserves to $1 trillion
and undermined government efforts to cool the economy.
All-Time High
The U.S. trade deficit with China widened to a record $24.4 billion in October, from $23
billion the previous month, the Commerce Department said on Dec. 12. The mainland
government indicated on Dec. 7 that its trade surplus may swell by almost two-thirds to an all-
time annual high of $168 billion this year.
China's central bank on Dec. 29 relaxed currency controls to make it easier for individuals to
buy stocks and bonds abroad and help reduce the value of the yuan. By making it easier to
invest abroad, the central bank may reduce demand for the yuan.
The People's Bank of China wants to slow the yuan's appreciation to prevent local exporters
from losing their price advantage.
The central bank over the past year has kept a stable currency policy to keep the currency and
loans growing at a reasonable rate, aiding stable and accelerated economic growth.
Money Supply
China's broad money supply grew at 16.8 percent in November amid the government's liquidity tightening, slowing from a 17.1 percent expansion in October, the central bank's data shows.
New yuan-denominated bank lending is expected to top 3 trillion yuan ($384 billion) this year, overshooting the central bank's target of 2.5 trillion yuan, and Vice Governor Wu Xiaoling said on Nov. 24 that the key policy objective is to withdraw yuan from the economy.
Since ending the currency's peg, the central bank has allowed it to float with reference to a basket of currencies including the euro, yen and South Korea's won. It is not allowed to fluctuate more than 0.3 percent against the dollar from a rate set daily by the central bank.
The Chinese currency this year rose 3.4 percent to 7.8051 against the dollar, according to Bloomberg data. It has risen 5.9 percent since the fixed exchange rate was scrapped. |
| Tarih
: 01.12.2007 |
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© 2006 Mert TOKER All Rights Reserved. |
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