China Says Will Move on Yuan in '05 - Reuters

[pilgrimsoul]

Hold onto your hats, folks. I'm guessing that the timing of China's currency move will coincide with the dollar's collapse and attacks on Iran this summer. 'Scuse me while I go stock my pantry and buy some gold...

http://finance.myway.com/ht/nw/bus/20050226/hlm_bus-sha267041.html


BEIJING (Reuters) - China will gradually open its capital account in 2005, another step in its plan to make the yuan currency fully convertible, state television said on Saturday, quoting the country's foreign exchange chief.

China, facing criticism from the West that a cheap yuan gives its factories an unfair competitive edge, has held its ground against demands it revalue -- but has promised to progressively free up trading in the currency.

"We will gradually ease the amount of renminbi that can be exchanged under the capital account, taking another step toward achieving full convertibility of the renminbi," the television quoted Guo Shuqing, head of the State Administration of Foreign Exchange, as saying.

--SNIP--

Finance Minister Jin Renqing, also in London for the G7 summit, said China would reform the currency only after tackling other problems, such as the sickly financial system.

Some foreign analysts estimate the bad-loan rate for China's state-owned banks is about 40 percent.

Beijing has also made clear its disdain for speculators, and has repeatedly said it would not move when the betting on a change was at fever pitch.

While the government has resisted foreign pressure to free up the yuan, it has tried to encourage some capital outflows to help relieve pressure on the currency to rise.


--SNIP--

This week, China unveiled steps to curb short-term foreign debt incurred by importers and let domestic firms retain more hard currency income, the latest steps to ease upward pressure on the yuan and lay the groundwork for a more flexible currency.

The yuan is convertible on the current account, which covers trade flows, but subject to tight curbs on the capital account, which covers investment.

China's central bank is being forced to issue huge amounts of yuan to soak up foreign inflows, a process economists say is helping fuel lending and inflation.

Much of the inflows are from investors seeking short-term profit if the yuan's value is increased.

[fedsron2us]

1. They said pretty much the same thing throughout 2004

Meanwhile the yuan stayed firmly pegged to the dollar. These statements from Chinese politicians and officials are largely designed to head off foreign criticism of Chinese mercantalist policy. Of course, if a true currency crisis were to hit the dollar then Beijing might find that its hand is forced.