RMB Band of Convertablity Widened

Sunday, January 7, 2007 5:04
Posted in category Invest in China, The Big Picture
Comments Off on RMB Band of Convertablity Widened

Bloomberg is reporting that China has widened the band on RMB convertibility for Chinese from 20,000USD to 50,000USD a year, effective February 1.

Meant to reduce demand for RMB, this could send the RMB from its current 7.8 above 8 again… smack in the face of recent visits by Paulson and Co.

Backtracking on the recent appreciation shows just how fine the line for Beijing even though another record year of FDI, GDP, tax revenue and exports have been recorded.

The article mentions a concern they ar squeezing local exporters, which will remain to be a concern as long as China’s reliance on exports is greater than its reliance on a burgeoning domestic economy.

I have yet to see nay response from U.S. officials on the story, but I am sure it is coming.

With regard to recent calls for full convertibility, my theory is that those calling for full convertibility do not fully appreciate the dynamics China, and will be disaapointed when the RMB goes past 10RMB/ USD in the days following. U.S. officials and economists who belief that the RMB will settle in the 6-7 range fail to take into account China’s history, and in particular the lose that many experienced during the cultural revolution.

Those who lived through the cultural revolution, and lost everything, will make sure that history cannot repeat itself by offshoring their assets as fast as humanly possible. The result, contrary to the opinion of U.S. policymakers will be an unplanned RMB depreciation, and potentially a severe one. An unproved theory, but food for thought as political pressure is sure to increase in the weeks leading up to February 1.

Have a bet on the way a fully convertible RMB would go? Add your comments here

Both comments and pings are currently closed.