China Realigns Forex Rules
Posted by Edward Dy on August 13th, 2008
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Photo credit: adrianbartel
During the last three years, we see that the Chinese yuan has appreciated. Even into the decade that lead to the sudden revaluation of the currency, a staggering amount of speculative money flooded China. From time to time, the Chinese government and the Central bank have attempted to cull quite a number of these inflows by deliberately making it unprofitable for foreigners to invest in China.
We have seen the artificially low interest rates and the one-way convertibility of the currency. Today, as inflation runs at a 10-year high, the Chinese administration is more intent than ever to tighten measures as regards factors that are driving demand.
In essence, what the result is an altered system for governing forex that will improve its foresight regarding entities and businesses that bring capital into China.
When properly done, a lot of the pressure pushing prices skyward, and the Renminbi itself could be relieved. To sum it up, under the old rule, China had a single exchange rate system, where the central bank would announce the value of the Chinese yuan on a daily basis. Today, under the realigned rules, China has a managed float exchange rate system based on supply and demand.
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