China ends currency peg; Malaysia follows suit

[AliBabaIncorporated]

Revaluation only 2.1% ... expect further revaluations. Malaysia announced the end of its peg only an hour after China did.

China Ends Yuan Dollar Peg, Shifts to Currency Basket
http://quote.bloomberg.com/apps/news?pid=10000006&sid=aFAWQT_9CGtQ&refer=home
(Update5)

July 21 (Bloomberg) -- China ended its decade-old peg to the dollar and said it will let the yuan fluctuate versus a basket of currencies, responding to criticism from the U.S. and Europe that its currency was undervalued.

The new yuan rate strengthens the currency by 2.1 percent to 8.11 per U.S. dollar immediately, the People's Bank of China said on its Web site. Until now, the yuan had been pegged at about 8.3 per dollar. The bank said it will continue to maintain a trading band of 0.3 percent.

The yen rose against the 16 most actively traded currencies and had its biggest gain against the dollar in 2 1/2 years. Treasuries tumbled.

``This was the first step in a series of revaluations that we can expect in the coming years,'' said Paresh Upadhyaya, a currency portfolio manager who is part of a group that oversees $29 billion at Putnam Investments in Boston. ``They'll be gradual.'' Malaysia followed China's decision, abandoning its seven-year-old practice of pegging the ringgit to the dollar.

Letting the yuan strengthen may help President Hu Jintao control inflation by reducing the cost of imported products such as oil and copper, which are priced in dollars. It also gives the central bank, which has sold yuan to prevent the currency from appreciating, more scope to increase interest rates to cool an economy that expanded 9.5 percent in the first quarter.

`More Flexibility'

The yen gained against the dollar after China's decision, strengthening to 111.81. The Singapore dollar also gained and Treasury notes declined.

``What they're really doing is leaving the door open to further revaluations,'' said Jens Nordvig, a currency strategist at Goldman Sachs Group Inc. in New York. ``By not pegging the yen to the dollar, it gives the Chinese more flexibility to engineer a gradual appreciation.''

Permitting the yuan to trade more freely would also answer criticism from the Bush administration and some members of the U.S. Congress that blame China's currency policy for a record trade deficit and the loss of 2.8 million manufacturing jobs.

The Treasury Department's twice-yearly review of exchange rate policies said last month that China needs to make the yuan more flexible or risk being branded a currency manipulator.

``China is now ready and should move without delay in a manner and magnitude that is sufficiently reflective of underlying market conditions,'' Snow told the Senate Finance Committee in Washington on June 23. ``Implementation of trade sanctions would lead to retaliatory policies against our exports, damaging the U.S. and global economy.''

Trade Deficit

The U.S. trade gap with China rose to a record $162 billion last year and the National Association of Manufacturers, a lobby group, expects it to grow to $225 billion this year.

Indiana Democratic Senator Evan Bayh and Maine Republican Senator Susan Collins presented legislation on June 23 that would let companies petition for duties on Chinese goods to compensate for government subsidies. The bill is one of more than a half- dozen in Congress that address what some lawmakers call China's unfair trade practices.

Currency Basket

Linking the yuan to a basket of currencies means China's currency wouldn't be tied so closely to swings in the dollar, said Adam Cole, a currency strategist at RBC Capital Markets Ltd. in London. The basket will probably be composed of the euro, yen and other Asian currencies as well as the dollar, he said.

``For instance, if we went through a prolonged period of dollar downward pressure then the yuan would feel all the pressure of that, but if it was using basket, then the move would be offset by other currencies doing better,'' said Cole. ``It's an easier way to manage a currency target.''

Singapore manages its currency by allowing it to fluctuate against a group of the nation's major trading partners. The Monetary Authority of Singapore, which reviews its policy every six months, hasn't disclosed the composition of the basket.

Investors have bet on a change in China's currency since 2002.

``If you let the exchange rate become more flexible, there is one clear direction it's going,'' said Marvin Barth, a currency strategist in London at Citigroup Inc., the world's largest bank. He spoke in an interview last month.

Investment in China

China's $1.6 trillion economy, which accounted for a 10th of world growth last year, has trebled in size since the yuan peg was introduced. Foreign direct investment jumped 14 percent to a record $60.6 billion in 2004, according to government figures. A year earlier, China surpassed the U.S. as the biggest recipient.

The People's Bank of China has to buy dollars that flow into the country to maintain the currency peg, adding yuan to the economy and diluting the impact of state lending curbs. The central bank spent $193 billion buying foreign currency in 2004, a 41 percent increase from a year earlier, it said on Feb. 28.

The central bank raised its lending and deposit rates on Oct. 28, the first increase in a decade, to complement limits on investment in property, steel and autos that have driven prices higher and strained power supplies.

``Clearly, it will be more effective if you combine currency and interest-rate policies,'' Uwe Parpart, Bank of America Corp.'s senior market strategist in Hong Kong, said before today's announcement. ``China wants to slow down inflation and growth. Raising rates and the value of the currency both push things in that direction.'' He predicted China would change the peg in the second half.

China is seeking to cap inflation at 4 percent this year from a peak of 5.3 percent in August. Inflation in 2005 is likely to slow to between 3.0 percent and 3.5 percent, the People's Bank of China said on June 14. The consumer price index climbed 1.8 percent in May from a year earlier, the National Bureau of Statistics said on June 13.

[VV o n g B a]

only 2.1%? i wonder if this is enuf to get congress not to pass that import tax bill.

[AliBabaIncorporated]

My personal opinion is that they just fucked up badly. Why would they do this???? 2.1% is jack, other currencies fluctuate by that much in a day without anyone blinking. Now even more hot money is gonna come in betting on another revaluation. Most of that money is going to park itself in the real estate sector, too.

What's really amusing is what other currencies are doing in response to this. E.g. the Canadian dollar, of all things, jumped 1% in about 20 minutes on the news. Now it's coming back down, but still, everyone in the currency markets (and anything else with international exposure) will probably be acting very stupid and panicked today. Time to look out for some good deals.

anyway, on the theory that the China People's Bank are not dumb, I think they have some kinda endgame here which I'm not seeing and which involves yanking the chains of people they don't like ...

[Craig]

If this is really set up against a basket of currencies, then it seems likely it's going to jump more than this. It's interesting that Hong Kong is still on the peg though.

[hooligan]

I heard that it really doesn't matter that much since the US makes the majority of the basket, but I'm not an economist so I don't really know.

[SunWuKong]

E.g. the Canadian dollar, of all things, jumped 1% in about 20 minutes on the news.

i wonder if the Canadian-citizenship HKers had anything to do with that. most of them are pretty well off. and i think Li Ka Shing has investments in Canada, too.

[Craig]

I heard that it really doesn't matter that much since the US makes the majority of the basket, but I'm not an economist so I don't really know.China is not telling us what the basket is, and obviously seems interested in divesting itself away from the US dollar. I seriously doubt that the US would be the majority of said basket, maybe a plurality though.

[Chester]

Great. Yet another place to get shitty currency exchange.

[yoMAMA]

it's mostly a cosmetics change, for show.

it's not gonna change china's massive trade surpluses, but at the same time, china can say to the us congress, hey, we are on our way to full floating currency!

good move, although the timing is not right.

[Faithless]

China's 'people's money' gains capitalist status (http://today.reuters.com/business/newsarticle.aspx?type=reutersEdge&storyID=2005-07-21T143234Z_01_PEK211059_RTRIDST_0_PICKS-ECONOMY-CHINA-YUAN-PROFILE-DC.XML)

Thu Jul 21, 2005 10:32 AM ET * By Scott Hillis

BEIJING (Reuters) - China's yuan, once the scrip of a communist state that scorned the very concept of money, has tracked the country's meteoric economic rise to become one of the most closely watched currencies in global capital markets.

Thursday's move to scrap the yuan's peg and raise its value against the dollar by 2.1 percent, following years of pressure from its major trading partners, is the latest dramatic change to a currency the Chinese call the renminbi, or "people's money."

When the Communists cemented their rule in 1949 under Mao Zedong, the country's ideologically obsessed overlords sought to distance themselves from capitalist concepts, replacing the long-standing yuan with the renminpiao, or "people's ticket."

Ironically, the renminbi was born in 1969, the height of the ultra-leftist Cultural Revolution.

Although the currency basket adopted on Thursday seems new to those accustomed to a decade of the dollar peg, it harkens back to a basket of 15 currencies set up in mid-1974.

With groundbreaking market-oriented reforms begun by Deng Xiaoping in 1978, China began forging tentative economic ties with the outside world and policy mandarins cast about for ways to keep a grip on the effects of foreign exchange inflows.

They found an answer in the so-called foreign exchange certificate, or FEC, which was effectively a separate currency for use by foreigners only.

Though Chinese people were barred from holding it, a thriving black market quickly emerged as the tender allowed the purchase of coveted import items such as Japanese television sets and American washing machines.

But the FEC's exchange rate was set at an unrealistically high level against the dollar, and by 1994 market pressures forced Beijing decided to unify the two rates at the lower rate of the renminbi.

Because foreign trade had been conducted in FEC, the move was an effective devaluation of one third, and some analysts say it set the stage for the financial bloodletting of the 1997/98 Asian financial crisis.

It was during that crisis that the yuan first became a focus of global attention, with country after country pleading with Beijing to help support the region's recovery by resisting the temptation to engineer a competitive devaluation of the yuan.

Today, China is the world's seventh-biggest economy, its total imports and exports amount to more than $1 trillion a year, and its leadership is no doubt keen to portray the latest move as evidence that they are responsible players on the world stage.

[yoMAMA]

what china did in the asian financial crisis was awesome (helping its neighbors, resisting short term monetary gains), and a sharp contrast to the criminal actions of currency speculators.

and george sorors should be indicted. :mad:

[ahsingjai]

http://www.bloomberg.com/apps/news?pid=10000080&sid=a96O1bZIFd.k&refer=asia

Asian Currencies Surge After China Lets Yuan Gain Versus Dollar

July 23 (Bloomberg) -- Asian currencies surged yesterday, led by the South Korean won and Taiwan dollar, after China allowed the yuan to appreciate against the U.S. currency for the first time in a decade.

The yuan gained 2.1 percent after China surrendered to pressure from the U.S., Europe and Japan to abandon its currency peg. A rising yuan gives China's consumers the opportunity to buy imports such as cell phones and televisions more cheaply from Asia and beyond, and makes it harder for the country's exporters to compete abroad.

The South Korean, Taiwan and Singapore currencies ``have a bigger potential to rise'' because of those nations' trade links with China, said Mirza Baig, a currency research analyst at Deutsche Bank AG in Singapore.

The won yesterday soared 1.4 percent to close at 1,021.30 against the dollar in Seoul, its largest advance since Feb. 22, according to Seoul Money Brokerage Services Ltd. Deutsche Bank forecasts the currency will climb to 980 by the end of the year, Baig said. Taiwan's dollar rose 1 percent to NT$31.648, its biggest gain since May 29, 2001, according to Taipei Forex Inc.

The local markets in the Taiwan and Korean currencies were closed when China said on the evening of July 21 that it would end its peg of about 8.3 to the dollar in favor of letting the yuan fluctuate 0.3 percent against an undisclosed basket of currencies.

Finance ministry officials from Japan and Korea had joined U.S. senators in calling for China to loosen the fixed-exchange rate, which they say gave it an unfair trade advantage.

`Early as Possible'

``It's better to do it as early as possible,'' Kwon Tae Kyun, director general responsible for foreign exchange at the South Korean finance ministry's international finance bureau, told reporters in Seoul on June 13.

A 10 percent rise in the yuan would probably add $2.4 billion to South Korea's exports, assuming a stable won, the Bank of Korea said in a report released on May 22.

China's 1.3 billion people are the world's biggest consumers of cell phones, motorbikes and televisions and the country is the largest export market for South Korea and Taiwan.

Sales abroad make up about 40 percent of Korea's economy, and almost half of Taiwan's gross domestic product.

The Thai baht yesterday climbed 1.2 percent to 41.35, its largest gain since Sept. 22, 2003, in late Asian trading. Singapore's dollar yesterday rose 1 percent to S$1.6611, the biggest gain since May 6, 2003.

Bets on Yuan

Traders raised bets the yuan will appreciate further after China said yesterday its new exchange rate will be adjusted on a daily basis versus a basket of currencies.

``The new system shows China is establishing a framework for a gradual appreciation,'' said Ichiro Ikeda, vice president of the global currency and commodity group at JPMorgan Chase Bank in Tokyo.

The yuan would rise to 7.7250 against the dollar in a year if freely traded, a gain of 4.7 percent from the new mid rate of 8.11, according to forward contracts in late Asian trading yesterday.

Trading in the forwards market allows investors to bet on the value of a currency that isn't fully convertible or hedge investments denominated in it.

The yuan was fixed at 8.1111 per dollar in the first trading day after the change in China's currency regime, according to the Shanghai-based Foreign Exchange Trading System.

Asian central banks may not let their currencies rise too much, too fast, said Enrico Caruso, chief trader at currency hedge fund Tempest Asset Management in Newport Beach, California.

South Korea's Finance Ministry yesterday said it will act to curb speculative trading in the won if the currency unexpectedly surges against the dollar.

`Strong Steps'

``We will take preemptive and strong steps when there is instability in the financial market,'' Finance Minister Han Duck Soo said in comments repeated by his spokesman Kim Kyung Hoh. Han said the finance ministry and central bank have set up a task force to monitor the won.

``We will intervene in the market if there's an overshooting of the won,'' Shin Je Yoon, deputy director general of the finance ministry's international finance department, yesterday said in a telephone interview. ``The won is not overshooting compared to the yen.''

The central bank on Dec. 2 said it bought dollars to stem the won's ascent, helping push up foreign-exchange reserves to $192.6 billion in November. The reserves, the world's fourth largest, rose to $205 billion by the end of June, suggesting it is still buying dollars.

``If there's a big run on the Korean won, the Singapore dollar and other currencies, I would imagine the central banks will step in to not make it a one-way proposition for speculators,'' Tempest Asset's Caruso said. ``I won't be surprised to see other Asian central banks at least'' checking the markets.

Caruso declined to provide currency forecasts.

`Double Whammy'

Malaysia on July 21 also removed its currency's peg to the dollar in favor of a managed float, allowing it to strengthen for the first time in almost seven years.

The decision by Bank Negara Malaysia may affect the Singapore dollar the most among Southeast Asia currencies, said Claudio Piron, a currency strategist at JPMorgan in Singapore.

The Monetary Authority of Singapore acts to stop its dollar rising or falling outside an undisclosed band against a basket of currencies including the yen and Malaysia's ringgit.

``What it would mean in trade-weighted terms is the Singapore dollar will come out higher because of the double whammy'' after China and Malaysia adjusted their currency pegs, Piron said. That's because ``of the trade links and the estimated 17 percent weight the ringgit has in Singapore's currency basket.''

JPMorgan raised its Singapore dollar forecast for the end of September to S$1.62 against its U.S. counterpart after China's decision, from a previous projection of S$1.65, Piron said.

`Excessive Volatility'

Trading in the city-state's currency hasn't been too volatile after China and Malaysia's decisions, the Monetary Authority of Singapore said yesterday.

The trade-weighted Singapore dollar ``is in the top half of the policy band,'' said Ong Chong Tee, the central bank's deputy managing director in charge of monetary policy. ``We'll only come into the market when the policy band is breached or there is excessive volatility.''

The Hong Kong Monetary Authority and government on July 21 said it will maintain its currency's peg to the U.S. dollar.

The link is ``the anchor of our economic stability,'' Acting Financial Secretary Stephen Ip said in a release posted on the government's Web site.

Hong Kong, an autonomous region of China that sets its own exchange rate, has fixed its currency to the U.S. dollar since 1983. The authority on May 18 widened the limit on the currency's decline to 7.85 per dollar from 7.8 and capped gains at 7.75.

[ahsingjai]

Crude prices rise following China's decision to abandon U.S. dollar link

By George Jahn
ASSOCIATED PRESS

1:29 p.m. July 22, 2005

VIENNA, Austria – Oil prices climbed by more than $1 a barrel Friday, one day after China's decision to abandon its currency peg to the U.S. dollar, making oil prices cheaper for China, the world's second-largest consumer of crude.

The renewed terror attacks on London's public transit system led to some nervousness on the markets. But Thursday's attacks were much less serious than the initial assault two weeks ago and analysts said their effects had dissipated by Friday. A new incident Friday, with police killing a suspect on a London subway train, also did not brake prices.

Light, sweet crude for September delivery rose $1.52 to $58.65 per barrel in afternoon trade on the New York Mercantile Exchange as bargain hunters stepped in. The contract had dropped 89 cents Thursday to close at $57.13 after the explosions in London raised travel concerns.

In other Nymex trading, heating oil futures rose 1.3 cent to $1.5819 a gallon while gasoline rose by 4.7 cents to $1.728 a gallon.

On London's International Petroleum Exchange, September Brent crude futures climbed $1.86 to settle at $57.58 a barrel.

China's abandoning the currency peg was "a slight net positive" for country's short-term oil demand, since imported crude will be cheaper in yuan terms, Barclays Capital said.

"If we are right, then the flow of diesel and gasoline exports out of China could slow down and crude oil imports pick up," said Kevin Norrish, director of commodity research.

Vienna's PVM Oil Associates also forecast possible "higher import volumes in the second half" of the year in China because of "higher domestic sales prices in combination with a higher purchasing power in dollar terms."

But some analysts suggested that over the longer term Beijing's currency moves will lead to less domestic oil consumption – and falling prices.

"The short-term impact is that oil in U.S. dollar terms will be cheaper to Chinese refiners. The longer-term impact of revaluation is really a cooldown of the Chinese economy," said Victor Shum, oil analyst at Texas-based energy consultants Purvin & Gertz.

"The macroeconomic cooling will reduce oil consumption in China and put downward pressure on crude prices."

U.S. Energy Secretary Samuel Bodman said Thursday that the currency change would not make much of a difference in Chinese oil demand.

"The demand for oil is created by economic growth, and the Chinese economy is already growing at a pretty good clip," he said.

Overall oil demand also will remain strong for "years, if not decades," he said.

China is the world's second-biggest user of petroleum products after the United States and third-biggest importer after Japan and the United States.

Late Thursday, China cut its currency link to the U.S. dollar to weigh it against a basket of currencies. As trading opened Friday, it rose about 2 percent against the dollar to the initial state-set rate of 8.11 yuan to the dollar. The yuan will be allowed to trade each day within a narrow 0.3 percent band above and below the price set by the state the day before.

U.S. President George W. Bush had blamed China's growth – and its increasing appetite for oil – for recent price rises.

But in the past 10 days, both the Paris-based International Energy Agency and the Organization of Petroleum Exporting Countries have slashed forecasts for world oil demand growth, citing weaker-than-expected need from Beijing.

Analysts were also following terror attacks in London, which came exactly two weeks after earlier strikes on the British capital's public transport system that killed 52 people and four suspected suicide bombers.

The incidents in London could put a dent in consumer confidence and curb the demand for travel to Britain, if not all of Europe, potentially hurting the economy and crimping global fuel consumption, analysts said.

"Two incidents within two weeks will be questioned by casual travelers. But it is probably too soon to tell," Shum said.

Crude oil prices are around $4 cheaper than its all-time high of $62.10 a barrel set in intraday trading July 7.


http://www.signonsandiego.com/news/business/20050722-1329-oilprices.html

[kuilong]

And we Americans are supposed to be happy about a floating RMB? Unless you're in manufacturing or something, I don't see why.

[yoMAMA]

people's bank of china chief:

slight RMB revaluation have more benefits than drawbacks, further appreciation will be gradual.

http://news.yahoo.com/s/nm/economy_china_trade_dc;_ylt=AoJ09l1GojvuP7R0zA6REQ CyBhIF;_ylu=X3oDMTBiMW04NW9mBHNlYwMlJVRPUCUl

[AliBabaIncorporated]

Some guy from Hang Seng said on the news they saw about forty million dollars worth of RMB converted on Friday in a single branch, along with thousands of new RMB account openings. (Also, there's a conversion limit of 6,000RMB/day per person). Which is a hell of a lot of dumbasses, since you can do it online instead of standing in the bank on what was probably the busiest day this year.

[yoMAMA]

washingtonpost.com
Don't Expect Yuan To Rise Much, China Tells World
Central Bank Says Change in Policy Was Only to Adjust Exchange Method

By Peter S. Goodman
Washington Post Foreign Service
Wednesday, July 27, 2005; D01

SHANGHAI, July 26 -- China's central bank declared Tuesday that last week's slight increase in the value of the country's currency, the yuan, was a one-time event and not the beginning of a gradual climb, as officials sought to diminish speculative pressures for a substantial revaluation.

In a "solemn statement," the People's Bank of China said the policy shift last Thursday was primarily aimed at changing how China sets the exchange rate for the yuan -- also known as the renminbi, or RMB -- by severing its direct link to the U.S. dollar, and not a signal of any willingness to allow its value to float upward.

"Certain foreign media have misled the public and even wrongly speculated that the revaluation of the RMB by two percent was only the first step in a series of adjustments," the bank said. Its action last week "does not in the least imply an initial move which warrants further actions in the future."

Analysts said China's central bank was sending a direct message to currency speculators, seeking to preempt capital from flooding into the country to bet on another increase in the value of the yuan. As China's leaders are well aware, speculators played a key role in overwhelming Thailand's fixed currency regime in 1997, forcing the central bank to devalue and triggering a broader Asian financial crisis.

Given such concerns, China's leaders could be bluffing, seeking to keep speculators off balance while it prepares another revaluation -- which some analysts and traders still expect. But economists close to China's central government said the warning from bank officials probably reflects genuine intentions: China chose not to increase the value of the yuan significantly, but has simply introduced a little extra flexibility in its day-to-day movements -- the first step in a process that could take as long as a decade before Beijing fully frees its currency to rise and fall according to global markets.

"We are not going to expect any one single great leap in [currency] appreciation in the future," said Ha Jiming, chief economist at China International Capital Corp., an investment bank partially owned by one of the country's major state-owned lenders, Construction Bank of China. "As the central bank has repeatedly emphasized, the currency revaluation move is more about reforming the exchange-rate mechanism than changing the exchange rate itself."

If the central bank's latest pronouncement does reflect policy, it could reinvigorate trade friction with the United States and other trading partners. The Bush administration has for more than two years pressured China to allow the value of its currency to float upward, arguing that a low-priced yuan makes Chinese-made goods unfairly cheap on world markets.

The White House commended China's slight revaluation. It was also praised by Sen. Charles E. Schumer (D-N.Y), who has been pressing a bill that would impose 27.5 percent punitive tariffs on Chinese goods if Beijing does not substantially increase the value of its currency.

Schumer was less effusive Tuesday. "While the Chinese Central Bank has said that they will not do another fixed valuation in the near future, we trust that the Chinese will allow market forces to work," he said in a written statement. "We will be carefully monitoring this process over the next few months."

Chinese analysts on Tuesday said anyone expecting another increase soon would be frustrated.

"China will not revalue the renminbi again in coming months," said Song Guoqing, an economist at the China Center for Economic Research at Beijing University.

As the central bank outlined its policy shift last week, some commentators and U.S. officials indicated that it could be the beginning of a gradual but significant series of increases in the yuan's value. Some suggested that it might increase the prices of goods made here, diminishing the U.S. appetite for Chinese products and cutting into the $162 billion U.S. trade deficit with China. Others said a stronger yuan might curb China's voracious buying of dollars in support of its exchange rate. That could limit China's purchases of U.S. Treasury bills, perhaps resulting in higher interest rates that could pop the U.S. real estate market.

But the word from China's central bank on Tuesday reinforced the voices of economists here and abroad who have counseled not to make too much of the slight change in how Beijing values its money.

"Simply put, we don't see any effect whatsoever of a 2 percent revaluation on exports or imports," Jonathan Anderson, chief economist at UBS Investment Research in Hong Kong, wrote in a recent note to investors. Anderson, who has been among the more accurate China watchers in recent months, wrote that it was "hard to see any effect at all" on U.S. consumers and manufacturers, or on China's rate of economic growth.

Even a larger shift in the value of the yuan would probably have little impact on U.S. manufacturers, because most of China's export growth is in products that have not been made in the United States in large scale in many years. Chinese workers who once earned $1 an hour will now make $1.02 -- hardly an equation that will prompt U.S. factories to dive back into the labor-intensive work of making toys, T-shirts and furniture.

Chinese officials have tried to deliver that message themselves in recent days to temper expectation of further revaluation.

"China's exchange rate reform won't have too much influence on U.S. deficits," China's central bank governor, Zhou Xiaochuan, said over the weekend.

Those anticipating a significant readjustment and change in the global economy have focused on how the central bank said it would now determine the exchange rate. In place of the fixed peg to the dollar, China said it would link the yuan to a basket of currencies while allowing daily trading within 0.3 percent of the previous day's closing price.

Some analysts construed that to mean that the currency might float up by 0.3 percent each day, increasing by as much as 3 percent over 10 days. Others speculated that the shift to the basket would mean that China would sell significant holdings of dollars as it added euros and Japanese yen, altering the prices of all three currencies and reducing demand for U.S. bonds.

But Chinese analysts said such expectations were based on a fundamental misreading of the new system and the intentions of China's leaders to maintain a largely stable exchange rate to ensure that there are no shocks to the system. China has yet to say what other currencies will make up its new basket and how their values will be linked to the yuan's -- information that many analysts assume will never be disclosed, to keep speculators off guard.

The new system gives China's leaders the ability to set the yuan's currency however they like, without disclosing their rationale. Far from a mathematic formula, the new exchange rate is a kind of guideline that the central bank can use at its discretion, analysts said.

"The media has been overreacting on the currency issue," said Zhang Liqun, an economist at the Development Research Center in Beijing, a think tank attached to China's State Council. "The central bank has adopted an opaque method on currency management. It's going to operate within a black box, which will be very difficult to grasp."

The strongest message China's central bank has delivered has been heard in the currency markets: On Friday, the first trading day after the announcement, China's currency was worth 8.11 to the dollar. On Tuesday, it was at 8.1099, according to the State Administration of Foreign Exchange.

Staff writer Paul Blustein contributed to this report from Washington. Special correspondents Eva Woo and Jason Cai also contributed.

© 2005 The Washington Post Company

nobel prize winning columbia university economist: China has managed its economy well (http://news.ft.com/cms/s/79797f04-fe00-11d9-a289-00000e2511c8.html)

[AliBabaIncorporated]

I bet now they're gonna do something assholish like jack the exchange rate back up to 8.3, or impose taxation on capital outflows with a short turnaround, just to screw all the people who are moving into RMB expecting more revaluations. Then later they're revalue down even further. (The bank I work for is predicting 7.75 to 1 by the end of next year).

It would be pretty funny to watch, I can say that.

Apparently in HK people made money by running around to all those ghetto 24-hour money changers shops run by clueless old people right after the news came out, and changing as much as they could into RMB before they updated their rates. Some of them took a damn long time cuz they never expected the RMB rate to change.