2011-12-07

Yuan hits limit low for fifth straight day

The central bank is defending the yuan and banks are taking advantage. See 人民币汇率五日连跌停三年首见 市场增持美元套利
“自从9月底以来人民币出现贬值预期后,金融机构都不愿卖外汇而愿意持有外汇,导致人民币兑美元汇率走低。而央行为了维稳汇率,即便在人民币盘中价前一交易日触及跌停的情况下,后一交易日还将中间价定得较高,自然导致金融机构更愿意买入外汇,人民币汇率屡次触及跌停也就不足为奇。”赵庆明说。
Since the end of September, after the forecast for a weaker renminbi came out, financial institutions have all been unwilling to sell foreign currency, this leads to the decline in the renminbi-dollar exchange rate. And the central bank, in order to maintain a stable exchange rate, even if the yuan hits the limit down during the trading day, the next day the midpoint is reset at a relatively high price, naturally this leads financial institutions to buy foreign currency and it's not at all surprising that the renminbi repeatedly hits the down limit.
In short, the PBOC is artificially propping up the yuan and banks are taking advantage by selling yuan and buying foreign currency. There is also a gap between Hong Kong (6.38 yuan per dollar) and Chinese mainland (6.33 yuan per dollar) exchange rates, offering arbitrage opportunities. The Western press seems focused on the economy, as seen in Yuan Tests Weaker End of Trading Band a 5th Day as Growth Slows .
China should increase yuan flexibility and draft clear goals for floating exchange-rate rules, Zhang Monan, a researcher at the State Information Center, wrote in a commentary in the Shanghai Securities News today. Former U.S. Treasury Secretary Henry Paulson said slower yuan appreciation could cause political problems for China in the U.S. during an election year, the Wall Street Journal reported.
This is the corner that China has painted itself into. The renminbi may very well need to decline, but the U.S. may impose trade sanctions if yuan appreciation slows. This is not to defend the U.S. policy, which is moronic, but China clearly had a great opportunity to reform during the period of strong growth and chose not too. Now, like every other government that put off tough decisions, the economic imbalances are too large to ignore and there are no easy choices left.

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