Careless Yuan Devaluation will Trigger Capital Fli

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Careless Yuan Devaluation will Trigger Capital Flight
Chinese economic growth has slowed considerably from 13% in 2007 to 9% in 2008. Some domestic experts point to the financial crisis as the reason for this decline, and are concerned about the effect of yuan appreciation on exports.
In fact, the yuan is slowly moving towards a trend of decline against the dollar, and some argue that the appreciation phase has shifted to depreciation. Supporting this viewpoint is the observation that the Chinese government, expecting weaker external demand, is devaluing the yuan to improve international trade.
The yuan has been gradually appreciating since its first rise against the US dollar in July 2005. By the end of 2008, it had appreciated a total of roughly 20%. Behind the yuan's rise were good fundamentals such as robust economic growth and an expanding trade surplus. Of course, currency appreciation also weakens the international competitiveness of export manufacturers through a negative price effect.
Low-value-added export manufacturing,[url=http://woolrichdeutschland.gengfl.com/][b]http://woolrichdeutschland.gengfl.com/[/b][/url], such as toys and shoes, has in fact been impacted since the yuan's appreciation. The global financial crisis in particular has forced a wave of coastal mid and small-sized export manufacturers out of business since the beginning of 2008.
As of October 30,[url=http://woolrichdeutschland.gengfl.com/][b]Woolrich Deutschland Woolrich Arctic Jacket Online Shop Damen and Herren outlet deutschland[/b][/url], 2008, 65,000 mid and small-sized export manufacturers have gone bankrupt, and 21 million migrant workers have lost their jobs. Most migrant workers are not covered by social insurance; to them, unemployment is a matter of life and death. Preservation of the labor-intensive export manufacturing sector is therefore necessary not only to maintain economic growth,[url=http://giuseppezanottioutlets.webmium.com/][b]2013 Giuseppe Zanotti shoes outlet sale Giuseppe Zanotti Sneakers[/b][/url], but to ensure social stability as well. It is unclear, however, that depreciating the yuan at this time would bolster international trading. On the other hand,[url=http://merrellfootwearsizechart.webmium.com/][b]sell discount 2013 merrell footwear size chart online store[/b][/url], there is a distinct possibility that it would trigger a capital flight.
Speculative hot money has consistently flowed into China in recent years under the expectation of good economic fundamentals. This is one factor behind excess liquidity in the Chinese market. The specific goals of this hot money are exchange profits from yuan appreciatio, and capital gain from real estate.
Real estate prices also continued to increase until 2007,[url=http://discountmerrellshoes.webmium.com/][b]discount merrell barefoot shoes discount merrell shoes online shop[/b][/url]. The Chinese economy has maintained growth even since the spread of the global financial crisis in latter half of 2008. Gone are the years of double-digit expansion. But Chinese economic growth remains highest in the world with a year-on-year rate of 9% in 2008,[url=http://rogervivieroutlets.webmium.com/][b]Roger Vivier Flats Roger Vivier Sale[/b][/url]. Behind this continued growth is the fact that hot money has remained in China and a capital flight has been avoided.
Currency stability and reform of the currency regime
On the other hand, depreciation and expectations for a weaker yuan in the market would lead to large-scale capital flight. The resulting drop in economic growth of up to two percentage points, followed by a recession and spike in unemployment, would create social instability.
Instead of devaluing the yuan,[url=http://billigamonclerjackasverige.albirank.net/][b]http://billigamonclerjackasverige.albirank.net/[/b][/url], China's immediate goal should be to stabilize the currency. A premature and significant currency adjustment would further destabilize a global economy already battered by the financial crisis; this was the clear lesson of the 1997 Asian currency crisis.
First, weakening the yuan exchange rate would result in an Asian devaluation war. Second,[url=http://duveticaukoutlet.halod.com/][b]Duvetica Jackets UK Outlet Duvetica Down Jackets For Men Store[/b][/url], the positive effects of devaluation on exports would be limited because of the shrinking export market. Third,[url=http://woolrichoutletitalia.albirank.net/][b]http://woolrichoutletitalia.albirank.net/[/b][/url], as previously mentioned, devaluation should be avoided to prevent a capital flight. Rather than devaluation, currency stabilization should be the priority.
One flaw of the current currency regime is the market mechanism is barely functioning. The yuan was pegged to the dollar until 2005, when foreign exchange reform changed it to a crawling peg that allows for daily fine-tuning. Specifically,[url=http://rogervivieroutlets.webmium.com/][b]http://rogervivieroutlets.webmium.com/[/b][/url], it is a system that "decides exchange rates referencing the basket of currencies." A look at the formation of daily exchange rates,[url=http://parajumpersonline.webmium.com/][b]http://parajumpersonline.webmium.com/[/b][/url], however,[url=http://duveticamen.blogspot.com/][b]duvetica men[/b][/url], shows that the of the People's Bank of China's (central bank) Bureau of Foreign Exchange typically sets the standard based directly on political, economic, and diplomatic factors. While the flow of foreign currency into the market is expected to continue as long as expectations for yuan appreciation remain high, the tendency towards arbitrary formation of exchange rates contributes to market instability.
It should be noted here that the current economic slowdown could be a result of the yuan's appreciation. Reforms stimulating domestic demand and transforming industrial structures are necessary to sustain economic growth. The collapse of the labor-intensive export manufacturing sector in particular has left more than 20 million migrant workers without employment. The services industry should be promoted with a focus on distribution as a source of new employment.
Exchange rates reflect the fundamentals of a nation's economy,[url=http://rogervivieroutlets.webmium.com/][b]roger vivier discount for Discount Roger Vivier Shoes Roger Vivier Flats Roger Vivier Sale[/b][/url], and show value compared to other currencies. Adjustments come from changes in the terms of trade with another country,[url=http://parajumpersoutletitalia.albirank.net/][b]http://parajumpersoutletitalia.albirank.net/[/b][/url], and if done artificially, can result in a hard landing for an economy.
In conclusion, considering the halfway reforms of the financial system and vulnerability of the capital market, the relatively ideal currency regime for China is a currency board closely linked to the basket of currencies, as found in Singapore. Clarification of the contents of the basket (weight of each currency) is unnecessary, and the Bureau of Foreign Exchange can adjust the weight according to their implicit goals. One benefit of the currency board is exchange rates can be adjusted with low volatility. The greatest merit, however, is that exchange rate speculation becomes difficult. Financial regulation reform centered on state-owned banks should be accelerated,[url=http://duveticaukoutlet.halod.com/][b]Duvetica UK[/b][/url], while efficiency in financial intermediation needs improvement. In addition, establishing a roadmap would facilitate further efforts towards opening the financial market.相关的主题文章：

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