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China’s move to a managed float against a basket of currencies is perhaps the most honest option a government may make. It declares to the world that the value of the currency will be determined in secret, and changed at will. If the Rmb rises the maximum 0.3% per day, it gets up to 8:1 at the end of next week, 7.8:1 (parity with HK$) around August 11 and hits the 10% appreciation mark (7.5:1) near the end of August. Those dates are based on the dollar, and don’t take into account movement in other currencies in the basket. It isn’t likely to be a straight line. Hong Kong isn’t going to do anything except implement the technical changes announced some months back that allows it to use tools other than interest rates to keep the HK$ steady. Lost in the hoopla is that China’s decision led to Malaysia’s move. First time in history that a change in the Chinese exchange rate regime was the direct cause of similar action elsewhere. Recall also that when China increased interest rates in October it was the first time in history that any Chinese monetary policy had an immediate impact on major markets elsewhere. Is it too early to say that July 21, 2005 marks the start of the Chinese Century? . Written by DOR on 2005-07-21 22:14:55 |
